Gold fell on Friday, shedding part of the previous day's gains as markets digested the mixed implications of a European Central Bank plan to pump out around 1 trillion euros to reflate the economy. The metal, often seen as a hedge against inflation, jumped more than 1 percent above $1,300 an ounce on Thursday after the announcement.
But with the euro hitting an 11-year low against the dollar, gold prices have since pared some of those gains as investors focused on the impact of the stronger US currency, which makes dollar-denominated assets more expensive for foreign investors. "Gold was completely dislocated from the dollar yesterday, meaning that euro-gold is the best performing commodity this year, helping dollar gold stay fairly stable around $1,300," Saxo Bank senior manager Ole Hansen said.
"But that strength in the dollar is now proving too much." Spot gold was down 0.3 percent at $1,297.20 an ounce by 1337 GMT. Bullion peaked at $1,306.20 on Thursday, its highest since August 15, and it was still headed for a third straight weekly gain. US gold futures were down $3.50 at $1,297.30 an ounce.
The dollar rose up to 1.1 percent against a basket of currencies, mostly due to euro weakness, while European shares had their biggest two-week rally in five years. Euro-priced gold hit its highest since April 2013 at 1,167.60 euros an ounce. Spot gold is up almost 10 percent since the beginning of the year as political uncertainties in the euro zone and worries about global economic growth lifted investment demand.
Traders were now likely to turn to Sunday's election in Greece and next week's Federal Open Market Committee (FOMC) policy meeting for clues about the wider economic environment and when US interest rates might rise. The Fed is expected to repeat that global risks have yet to throw the US recovery or its rate hike plans off track despite the growing number of central banks cutting rates and ramping up stimulus.
Still, concerns over the global economy and positive chart patterns should support gold in the short term, with $1,320 and $1,350 "achievable upside targets", said INTL FCStone in a note. Among other precious metals, spot silver was down 0.1 percent at $18.26 an ounce. Palladium lost 0.6 percent at $768.75 an ounce, while platinum fell 0.4 percent to $1,273.40 an ounce.