Gold prices held firm on Friday and were set for their first weekly gain in three as traders stepped up bets that the Federal Reserve will start cutting rates soon, sending the dollar and Treasury yields lower.

Spot gold was little changed at $2,377.80 per ounce as of 0718 GMT. Bullion has gained about 2% so far this week.

U.S. gold futures rose 0.2% to $2,396.50.

The dollar hovered close to an eight-week low and the benchmark 10-year U.S. Treasury yield fell as much as 4.275% on Thursday, its lowest since April 1, making bullion more attractive for investors.

"Gold prices have been holding up lately as declining bond yields and a struggling U.S. dollar have offered a supportive environment for the yellow metal," said IG market strategist Yeap Jun Rong.

Markets now look forward to U.S. nonfarm payrolls data at 1230 GMT and are bracing for the possibility that jobs growth will be below the 185,000 median forecast of economists.

"It may have to take a significant downside surprise in labour conditions to convince the Fed of an earlier rate cut, given that inflation progress has broadly stalled around the 3% level. Any weaker labour market data could translate to upside in gold prices," Jun Rong said.

A run of weak macro data this week added to signs that inflation was cooling and that the Fed would start cutting rates as early as September.

Lower rates reduce the opportunity cost of holding non-yielding bullion.

Gold prices are expected to hit another record high this year despite a dip in physical demand, consultancy Metals Focus said.

"Building confidence in Fed rate cuts and Chinese reserve buying, which has slowed a bit recently but remains robust overall, gives gold prices a broadly bullish bias for now," said Ilya Spivak, head of global macro, Tastylive.

Spot silver fell 0.1% to $31.28 per ounce, platinum was up 0.6% at $1,008.85 and palladium lost 0.6% to $924.00.

(Reporting by Sherin Elizabeth Varghese in Bengaluru; Editing by Janane Venkatraman, Varun H K and Sonia Cheema)