Gold prices advanced on Friday, after falling for three straight sessions tracking a pullback in the dollar, but increased optimism around a U.S. debt limit deal set prices for a weekly drop.

Spot gold was up 0.4% to $1,964.85 per ounce by 0856 GMT, after hitting its lowest since early April on Thursday.

U.S. gold futures rose 0.5% to $1,969.00.

The dollar index slipped 0.3% on the day and made gold more affordable for holders of other currencies, but the index was headed for a second straight weekly gain.

The yellow metal was on track for its worst week since early February, down about 2.3% so far.

"Gold has been dragged below the psychologically-important $2,000 level this week due to optimism surrounding a U.S. debt deal," said Han Tan, chief market analyst, Exinity.

Democratic negotiators told President Joe Biden on Friday that they are making "steady progress" in talks with Republicans aimed at avoiding a U.S. default, according to a White House official.

Gold soared to $2,072.19 earlier this month, just cents away from an all-time high of $2,072.49, but has since lost about 5% following data that showed a tight labor market and still-high inflation.

Moreover, "the hawkish undertones from recent Fed speak, along with some still-resilient U.S. economic data have prompted markets to now forecast a 30% chance of a June rate hike," Tan added.

High interest rates discourage investment in non-yielding bullion.

The latest comments from Fed officials on Thursday that inflation was not cooling fast enough to allow the Fed to pause its interest-rate hike campaign added to the hawkish rhetoric.

Gold might slide further into a range of $1,938-$1,947 per ounce, according to Reuters technical analyst Wang Tao.

Spot silver rose 0.9% to $23.71 per ounce, platinum added 0.7% to $1,055.90 and palladium climbed 1.3% to $1,472.00.

(Reporting by Kavya Guduru in Bengaluru; Editing by Rashmi Aich)