Gold rose on Friday as the dollar hovered near a month's low, but expectations of more U.S. interest rate hikes this year capped gains.

Spot gold rose 0.3% to $1,964.19 per ounce by 1030 GMT, en route a 0.2% advance for the week. U.S. gold futures also rose 0.3% to $1,976.70.

The dollar index edged up, but held close to a one-month low, making gold less expensive for overseas buyers.

"The market turned a little wiser this week - it wants to stay long gold, and price weakness is being used as a buying opportunity along with the emerging belief that incoming data is unlikely to support the projection of two more hikes before year-end," said Ole Hansen, head of commodity strategy at Saxo Bank.

After the Federal Reserve signalled on Wednesday that borrowing costs might still need to rise by as much as half a percentage point by the year-end, traders see a 72% chance of a 25-basis-point rate hike in July being the only rate hike in 2023, the CME's FedWatch tool showed.

Higher interest rates dull appeal for zero-yield bullion.

But driving a rebound in bullion in the previous session, U.S. initial jobless claims were unchanged at 262,000 for last week, while industrial output dropped 0.2% in May.

Meanwhile, holdings in SPDR Gold Trust — the world's largest gold-backed exchange-traded fund — saw outflows for most of this week.

This was "simply because gold is very boring compared to the stock market", which is gaining on AI-related news, Hansen added.

The S&P 500 has rebounded nearly 24% from its October-lows.

Silver rose 0.6% to $24.01 per ounce, while platinum was up 0.1% at $986.59, both down for the week.

Palladium fell 0.5% to $1,393.40, yet was seeing its best week since mid-April.

(Reporting by Seher Dareen in Bengaluru; Editing by Shilpi Majumdar)