Gold fell on Friday as investors took profits a day after the precious metal hit a one-month high, and safe-haven buying dried up as a deal between Greece and Cyprus eased fears of an escalating euro zone debt crisis.
For the week, bullion gained 1 percent, its biggest weekly gain in 2 months, with investors seeking refuge in the precious metal for most of the week amid worries about whether Cyprus could secure a bailout from the European Union.
"The appeal of gold could return after a delay, as occurred in the immediate aftermath of the financial crisis in 2008. But should gold fail to respond, it is running out of catalysts to drive prices higher," said Suki Cooper, precious metals strategist at Barclays Capital.
Silver dropped 1.5 percent, wiping out the previous session's rally. Rebounding equities on Wall Street further pressured bullion after Cyprus agreed with Greece on a takeover of the Greek units of Cypriot banks, ending uncertainty over the fate of those operations. Spot gold was down 0.4 percent at $1,607.31 an ounce by 3:07 pm EDT (1907 GMT).
US gold futures for April delivery settled down $7.70 at $1,606.10 an ounce, with trading volume about 20 percent below its 250-day average, preliminary Reuters data showed. Cyprus is scrambling to avoid a meltdown of its banking system and a possible exit from the euro, facing a deadline from the European Union of Monday to raise 5.8 billion euros to secure a 10 billion euro ($13 billion) international lifeline.
"The lack of a bailout deal leaves us positive on gold for the short term," said James Steel, chief precious metals analyst at HSBC. On Thursday, gold hit its highest since February 26 at $1,616.36 an ounce, as the Cyprus crisis helped lift gold out of a downtrend due to an improving economic outlook that sent prices to a seven-month low in February.
Gold's 12-year bull run has benefited in the last three years from the euro zone crisis. It culminated to a record high of $1,920 an ounce in September 2011 as fears about Greece's debt problems boosted bullion prices while equities plunged. Also underpinning prices was a warning by Fitch Ratings that Britain could lose its AAA rating, citing high government debt levels and weak growth.
Silver fell 1.5 percent to $28.69 an ounce. If a bailout agreement on Cyprus is not reached, analysts said, the metal could again look at piercing resistance at $1,620 an ounce, a price unseen since the end of February. A break above that level could also rekindle enthusiasm in trading.
There is also considerable pressure from the continuous outflow from gold-backed exchange-traded funds. Holdings of these funds are seen as a barometer of investment interest in gold. Holdings of SPDR Gold Trust, the world's largest gold ETF, fell 0.9 tonnes from the previous session to 1,221.26 tonnes on Thursday, the lowest since July 2011. The gold ETF is headed for a 12th week of outflows. Among platinum group metals, platinum climbed 0.2 percent to $1,580.24, while palladium rose 0.6 percent to $758.22.