Gold edged higher on Friday as the dollar weakened, but stayed on track for its sharpest weekly drop in more than two months as strong U.S. economic data raised uncertainty over the timing of the Federal Reserve's stimulus slowdown.
Spot gold was up 0.5 percent to $1,248.16 an ounce at 1310 GMT, after hitting a fresh four and a half month low of $1,236.29 in the previous session.
U.S. gold futures for December delivery rose 0.4 percent to $1,248.10 an ounce.
Gold was on track for a 3.2 percent weekly drop, while spot silver also headed for its worst week since mid-September, down 3.7 percent so far.
"Bullion is now trying to consolidate near new lows after we have broken below the the October deep of $1,260," VTB Capital analyst Andrey Kryuchenkov said.
"For now the market is still driven by macro headlines and is still wary of the fact that the Fed will be the first to reduce monetary stimulus," he added.
A break of the key support area of $1,238-$1,240 an ounce would open up the potential for a broader move towards $1,180, ANZ said.
The dollar fell 0.4 percent against a basket of currencies, mostly due to a stronger euro after European Central Bank President Mario Draghi shot down a report that the ECB was actively considering cutting a key interest rate below zero.
Solid U.S. data over the past few weeks was hurting bullion prices as it could bolster the case for curbing stimulus soon. The Fed's massive bond-buying programme has burnished gold's appeal as a hedge against inflation.
Uncertainty over the timing of the tapering has pushed investors to take money out of gold, causing the metal to drop 25 percent this year.
Janet Yellen - the likely next Fed chair - said last week that she would press forward with the bank's ultra-easy monetary policy until officials were confident a durable economic recovery was in place that could sustain job creation.
GOLD ETF HOLDINGS DECLINE
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 3.6 tonnes to their lowest since early 2009 at 856.71 tonnes on Thursday. Outflows have totalled 450 tonnes this year.
Physical demand picked up slightly due to the price drop but many buyers were still on the sidelines hoping for further declines, dealers said.
Data from the International Monetary Fund on Friday showed that Germany cut its bullion holdings for the second time in five months in October. The Bundesbank said it sold 3.421 tonnes of gold for federal coin minting.
Silver rose 0.5 percent at $20.02 an ounce, having touched its lowest since mid-August at $19.68 on Thursday.
Spot platinum rose 0.5 percent to $1,391.70 an ounce, while palladium gained 1.7 percent to $722.72 an ounce.
HSBC cut its 2013 platinum price forecast to $1,500 and ounce from $1,580 an ounce, and its 2014 forecast for the metal by $100 to $1,625 an ounce, saying weaker gold prices and a shift of investment into equities had hurt platinum this year.
"We ... forecast a record platinum market deficit of 889,000 ounces for this year, narrowing to 402,000 ounces in 2014," it said. "Our forecast narrowing of the deficit is attributed mostly to be a plateauing in demand for the new South African platinum exchange-traded fund."