Gold climbs above Feb lows, heading for sixth weekly drop

Gold rose on Friday, climbing above the prior session's 10-1/2 month low, as the dollar and US stocks dipped at the end of a volatile week highlighted by the Federal Reserve's signal that there could be more rate hikes than previously expected in 2017.

Spot gold was up 0.6 per cent at $1,135.16 an ounce by 2:30 pm EST (19:30 GMT). The metal hit $1,122.35 on Thursday, its weakest since February 2 and is down 2 per cent so far this week, leaving it on track for its sixth consecutive weekly loss.

US gold futures settled up 0.7 per cent at $1,137.40.

Gold prices rose to session highs after US officials told Reuters that a Chinese warship had seized an underwater drone deployed by a US oceanographic vessel in the South China Sea.

"It gave gold a little bit of a boost but it was a knee-jerk spike. It looks like both sides are trying to tweak each other if you will," said Bill O'Neill, co-founder of LOGIC Advisors.

"Today's something of a consolidation day across the board."

The dollar fell from the 14-year high against a basket of currencies reached on Thursday when markets repositioned for a more hawkish US central bank.

"The rate hike this week from the Fed and the hawkish outlook for next year leave a fairly negative picture for gold," ING commodity strategist Warren Patterson said.

Higher interest rates next year could propel the US currency higher, making gold more expensive for non-US firms.

"The nature of recent gold selling implies fresh shorting as well as liquidation," HSBC analyst James Steel said in a note.

"The selling may not yet be exhausted."

Highlighting investors' lack of appetite for gold are physically backed gold exchange traded funds; holdings of the SPDR Gold Trust, the world's largest gold ETF, are down more than 10 per cent since November 9.

Silver gained 0.6 per cent at $16.05 an ounce, after falling more than 5 per cent on Thursday.

Platinum rallied 3.50 per cent to $924.80, after dropping to the lowest since early February in the previous session.

Palladium was down 1.5 per cent at $689.50 after falling to a one-month low at $677.25. It is on track to end the week down more than 5 per cent.

"We would refrain from buying (platinum or palladium) at this point in time," Julius Baer analyst Carsten Menke said in a note. "We have become more cautious on the demand backdrop, primarily related to autocatalysts and jewelry."