Gold steadied on Friday as the dollar retreated, but bullion was still on pace to post a weekly fall of nearly 1% as the non-yielding asset wrestled with the prospect of higher interest rates.

Spot gold was flat at $1,821.80 per ounce by 09:56 a.m. ET (1356 GMT), after earlier touching a one-week low of $1,820.30. U.S. gold futures fell 0.2% to $1,826.90. Boosting gold's appeal, the dollar index fell 0.2%.

"There are a confluence of forces that are driving gold prices in both directions, forcing it to remain in a small range," said TD Securities' commodity strategist Daniel Ghali. "We have risks of a recession and signs of an imminent slowdown in global growth driving inflows into gold as a safe haven. On the other hand we have Fed's committed to fighting inflation, contributing to a significant rise in real rates."

St. Louis Fed President James Bullard said the Fed must act boldly in raising interest rates to contain inflation. Bullion in considered an inflation hedge and but higher U.S. interest rates increase the opportunity cost of holding it.

"We do think that gold has some minor upward potential in the second half of the year, forecast is for $1,900," said Commerzbank analyst Carsten Fritsch.

However in the short term, the Fed will hike rates aggressively, providing some headwinds for gold, Fritsch added.

In the physical gold market in Asia, dealers offered bigger discounts in India this week to lure buyers as the wedding season concluded, while some consumers in China bought bullion to hedge against economic concerns.

Spot platinum rose 0.2% to $908.88 per ounce, palladium jumped nearly 1% to $1,861.86. Silver fell 0.6% to $20.80.

(Reporting by Ashitha Shivaprasad and Arundhati Sarkar in Bengaluru; Editing by Amy Caren Daniel)