Gold finished higher on Friday, marking its second straight weekly gain, as the euro firmed, US and European shares fell and the US consumer price report supported the view that the Federal Reserve has leeway to keep up its monetary easing. US consumer price data recorded the largest increase in nearly four years in February, as the cost of gasoline surged. Excluding food and energy, however, the gain was only 0.2 percent, slower than January's 0.3 percent pace.
Despite the benign inflation reading, the dollar skidded from a seven-month high against a basket of currencies. The US CPI data affirmed expectations that the Federal Reserve will continue its bond-buying program for the foreseeable future. "It caught us a little bit by surprise that the dollar was weaker against the euro. With all the economic data lately, I would think that it would be stronger. But with the Fed meeting next week, I think a lot of people don't want to make bets ahead of it," said David Lee, a gold trader at Heraeus Precious Metals Management in New York.
Gold prices were poised for a second straight week of small gains, with most players sidelined in anticipation of the Federal Reserve's policy setting meeting next week. But in recent sessions gold has been pressured by a strong dollar, which has benefited from good news on the US economy, luring foreign buyers into US assets on expectations that US growth is outperforming other major countries. Spot gold was up 0.13 percent at $1,591.90 an ounce by 3:35 pm EDT (1935 GMT), on track for a weekly gain of less than 1 percent. US gold futures for April delivery settled $1.90 higher at $1,592.60.
Officials at the central bank meet next week to assess the economy and are widely expected to keep purchasing $85 billion in bonds per month to spur even stronger growth. One gauge of investor interest, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, were unchanged at 1,236.307 tonnes on March 14 from a day earlier. Even so, they have dropped 3.432 tonnes so far this week - on course for an 11th week of decline.
Signs of investor fatigue and higher downside risks to the gold outlook led Barclays analysts to cut their 2013 price forecast by 7.4 percent to $1,646 an ounce. Barclays did say it saw some scope for gold to gain traction, given the debt ceiling debate in the United States, scheduled for May.
Spot silver fell 0.21 percent to $28.72 an ounce. Platinum was even at $1,586.49. The metal has returned to trade around parity with gold again this week on worries over auto demand growth in Europe, which mostly uses platinum loadings in auto catalysts to clean up exhaust emissions. Palladium added 0.55 percent to $771.72.