Gold prices edged higher on Friday as optimism over U.S.-China trade talks pressured the dollar, but signs of the U.S. Federal Reserve raising interest rates again this year capped gains.
Spot gold inched 0.1 percent higher to $1,324.59 per ounce at 0408 GMT. The metal was headed for a second straight weekly rise, up almost 0.3 percent. The precious metal had hit a 10-month high on Thursday, but later erased the gains.
"On a day-to-day basis, gold is a function of changing currency markets and the U.S. dollar. Medium outlook is a lot more to do with geopolitical issues and yields," said Kyle Rodda, a market analyst with IG Markets.
The dollar index against a basket of six major currencies was set to decline about 0.3 percent this week, which could be its biggest weekly fall in a month.
"The fact that gold was overbought-driven very much by a new yield environment and tensions around the world has helped keep gold prices elevated," Rodda said.
Gold had hit a 10-month high of $1,346.73 on Wednesday, but minutes from the Fed's January policy meeting indicated there might in fact be a rate hike this year, erasing gains in gold.
"Dovish signals from U.S. Federal Open Market Committee officials for the shorter term have kept global equities steady whilst applying bearish pressures on the non-interest bearing asset," Phillip Futures said in a note.
Higher interest rates reduce investor interest in non-yielding bullion.
Markets were looking for further indications of progress on trade talks with U.S. and Chinese negotiators resuming high-level talks on Thursday to hash out a deal that could end their trade war, just over a week before a U.S.-imposed deadline.
The United States and China have started to outline commitments in principle on the stickiest issues in their trade dispute, marking the most significant progress yet toward ending a seven-month trade war, according to sources familiar with the negotiations, Reuters reported exclusively.
Indicative of investor sentiment toward bullion, holdings of SPDR Gold Trust GLD , the world's largest gold-backed exchange-traded fund, fell 0.63 percent to 789.51 tonnes on Thursday.
Meanwhile, palladium was up 0.3 percent to $1,473.00 per ounce, having surpassed the key $1,500 level for the first time on Feb. 20.
The autocatalyst metal was on track for a third straight week of gains, up nearly 3 percent.
Platinum gained 0.6 percent to $824, and was set for its best week since early January. Silver was little changed at $15.81 per ounce. It was on course to snap two consecutive weekly losses.
(Reporting by Karthika Suresh Namboothiri in Bengaluru; Editing by Rashmi Aich) ((firstname.lastname@example.org; +91 80 6749 0997 (If within U.S. call 651-848-5832); Reuters Messaging: email@example.com))