Gold prices dropped on Friday, staying on course for a fifth straight weekly decline, as a relentless surge in the dollar and fears of a more aggressive U.S. interest rate hike weighed on demand for bullion.

Spot gold was down 0.3% at $1,704.59 per ounce, as of 0702 GMT, and has lost 2.1% so far this week. U.S. gold futures eased 0.2% to $1,701.70.

"Gold has wilted in the face of a stronger U.S. dollar this week, but appears to be trying to form a temporary base ahead of $1,700.00. That said, it is displaying no signs of meaningful upside momentum with rallies limited to the $1,750.00 region," OANDA senior analyst Jeffrey Halley said.

The dollar was perched at 20-year highs, continuing to suppress demand for greenback-priced gold among overseas investors, after sending bullion over 2% lower on Thursday.

"In the bigger technical picture, gold still looks vulnerable, with risks skewed to the downside," Halley said.

Two of the U.S. Federal Reserve's most hawkish policymakers said on Thursday they favoured another 75-basis-point interest rate increase at the central bank's policy meeting this month, not the bigger rate hike traders had raced to price in after a report Wednesday showed inflation was accelerating.

Higher interest rates and bond yields raise the opportunity cost of holding non-yielding bullion.

Benchmark U.S. 10-year Treasury yields edged lower on Friday, buoying gold slightly. "Investment demand for gold is weakening," ANZ Research said in a note, adding that gold will remain under pressure from expectations of a large Fed rate hike.

Spot silver fell 1.1% to $18.18 per ounce, and lost about 6% this week, in what could be a seventh straight weekly loss.

Platinum slipped 0.4% to $840.53 per ounce. It has dropped about 6.4% this week, the most in three months.

Palladium rose 0.4% to $1,904.27, but fell 13% this week, the most since last November.

(Reporting by Bharat Govind Gautam in Bengaluru; Editing by Amy Caren Daniel and Sherry Jacob-Phillips)