London Gold fell Friday, under the weight of the stronger dollar, and was set for its largest weekly decline since mid-December after an aggressive sell-off earlier in the week, although investors showed no loss of appetite for the metal.
Spot gold was indicated 0.5 per cent lower on the day at $1,707.51 an ounce by 1325 GMT, heading for a 3 per cent decline last week.
The strength in the dollar, which rose to nine-month highs against the yen and gained against the euro posed a headwind to gold, which tends to move inversely to the greenback as non-US investors can achieve more of a profit on their bullion holdings in their own currencies.
Gold is set for its largest weekly fall since mid-December after coming under intense pressure on the US futures market on Wednesday.
Downbeat assessment
US Federal Reserve Chairman Ben Bernanke issued a downbeat assessment of the US economy and reiterated the central bank's commitment to keeping benchmark interest rates near zero until at least late 2014.
No explicit sign from the Fed on the use of additional policy tools such as quantitative easing or anchoring longer-term bond yields to promote growth triggered the biggest sell-off in gold in 2-1/2 months.
Yet analysts and investors believe that gold has enough positive drivers to sustain the market over the coming year, which could see the price make new highs.
"In the shorter term, we could see further weakness and we do advise our clients not to try to catch a falling knife," said Mark O'Byrne, director at online bullion market Goldcore.
Largest net inflows since January
Highlighting the resilience of investors, holdings of gold in the world's largest exchange-traded products, one gauge for tracking shorter-term shifts in investor appetite for bullion, hit a record high above 70.76 million ounces, having witnessed their largest net inflows this week since early January.
"The broader macro backdrop remains gold-favourable, given the negative interest rate environment, longer-term inflationary concerns and lingering sovereign debt uncertainties," Barclays Capital said in a research note.
