Gold near 10-1/2-month low, heads for sixth weekly drop

Gold rose on Friday but remained near its weakest level in 10-1/2 months as an interest rate increase by the U.S. Federal Reserve and hints of further hikes in 2017 dampened the safe- haven appeal of the metal.

Spot gold was up 0.5 percent at $1,134.18 an ounce by 0726 GMT. In the previous session, it hit its weakest since Feb. 2 at $1,122.35.

The metal was down more than 2 percent for the week, and is on track for its sixth consecutive weekly loss.

U.S. gold futures climbed 0.5 percent to $1,135.90 an ounce, after dropping nearly 3 percent in the previous session.

"The nature of recent gold selling implies fresh shorting as well as liquidation," said HSBC analyst James Steel.

"The selling may not yet be exhausted. However, the pace and intensity of the selling pressure and price declines seen on Wednesday and Thursday are unlikely to continue, at least not at the present rate."

The U.S. dollar on Friday stood near a 14-year peak and bond yields were highly elevated.

"The bearish factors for gold ‒ namely a high U.S. dollar, rising yields and equities and risk-on investor demand appetite ‒ leave bullion clearly on the defensive," Steel said.

U.S. Fed on Wednesday hiked rates for the first time in a year and projected three more increases in 2017, up from the two projected in September.

"Technically gold prices are oversold and need a bit of rebound. That will happen only after the December payrolls data," said Jiang Shu, chief analyst, Shandong Gold Group.

"The effect of the Fed has been huge. People are expecting more rate hikes next year on expectations of higher inflation. We see at least two rate hike in the first half of 2017 and prices are going to be lower for a while."

U.S. economic data on Thursday showed rising rents lifted underlying U.S. inflation in November, and a decline in the number of Americans filing for unemployment aid last week.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, which are down over 10 percent since November, fell 0.84 percent to 842.33 tonnes on Thursday.

Silver gained 1 percent at $16.11 an ounce, after falling over 5 percent on Thursday. It has fallen over 4 percent so far this week.

Platinum rose 1.2 percent to $904.20, after dropping to the lowest since early February in the previous session.

Palladium lost as much as 1.2 percent to $692.35, on track to finish the week down over 5 percent.