Gold rose on Friday as the euro made gains, US and European shares fell and the market interpreted the latest data on US consumer prices as a sign the Federal Reserve has leeway to continue monetary easing. US consumer prices recorded their largest increase in nearly four years in February as the cost of gasoline surged, but excluding food and energy the gain was only 0.2 percent, slowing from January's 0.3 percent.
Gold prices headed for a second straight week of gains as the generally benign underlying price pressures were seen as giving the US central bank scope to keep pumping money into the economy. Spot gold rose 0.4 percent to $1,594.94 an ounce by 1504 GMT, on course for a weekly gain of around 1 percent.
US gold futures for April delivery were up 0.2 percent at $1,594.40. "The Fed said it is going to expand its balance sheet for a while, and for that reason inflation and inflation-related data are not a concern, whereas it is clearly a factor for gold that monetary easing in key markets continues," Danske Bank analyst Christin Tuxen said. Accommodative monetary policies favour gold, because low interest rates encourage investors to put money into non-interest-bearing assets.
The Federal Reserve, due to meet on March 19-20, looks set to keep buying $85 billion a month in mortgage and Treasury bonds in an effort to encourage investment and bolster a weak economic recovery. Gold also found strong support from a rebounding euro, which had reached three-month lows against the dollar in the previous session, analysts said. "The strength in the gold price is also driven by the euro/dollar, which has been quite high throughout the day," Tuxen said.
"We see this rebound continuing in the short term, and this may reflect some near-term upside for gold." The dollar extended earlier losses against a basket of other currencies after US consumer sentiment tumbled to its lowest since December 2011 in early March. Analysts said the prospect of EU leaders looking at short-term ways of boosting faltering euro zone economies may lift the euro against the dollar.
A weaker dollar makes commodities such as gold cheaper for holders of other currencies. US and European shares fell on Friday, reversing from recent multi-year highs as investor appetite for riskier assets cooled. As a 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 its 2013 price forecast by 7.4 percent to $1,646 an ounce. It however said that there is scope for gold to gain traction, given the debt ceiling debate in the United States, scheduled for May. Spot silver rose 0.6 percent to $28.94 an ounce. Platinum was up 0.2 percent at $1,588.99. 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 rose 0.5 percent to $771.