Gold edged lower on Friday as investors took profits after two days of gains sparked by assurances from the likely new Federal Reserve chief that the U.S. central bank will continue its easy monetary policy for now.
Fed Chair nominee Janet Yellen said on Thursday she would press forward with the central bank's ultra-easy policy until officials were confident a durable economic recovery was in place that could sustain job creation.
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Answering questions before the Senate Banking Committee, Yellen defended the Fed's steps to spur growth, calling efforts to boost hiring an "imperative" at a hearing on her nomination to become the first woman to lead the U.S. central bank.
"Gold prices have the tendency to edge higher on dovish central bank messages but the impact is rather limited," ABN Amro analyst Georgette Boele said.
"Everyone knows this is just a delay and the tapering will happen sooner or later," she added. "When you have a stronger economy, the market will start anticipating an increase in interest rates, and that's not positive for gold."
Spot gold eased 0.4 percent to $1,282.24 an ounce by 1039 GMT, after gaining nearly 1 percent in each of the previous two sessions.
Yellen's comments earlier in the week lifted the metal from a near four-week low of $1,260.89 hit on Tuesday, but prices failed to advance above the crucial $1,300 level on a lack of strong investor interest, traders said.
Gold has fallen nearly 25 percent this year after the Fed signalled it would begin slowing its $85 billion monthly bond purchases.
The dollar gained 0.1 percent against a basket of currencies. A stronger U.S. currency makes dollar-denominated assets such as gold more expensive for foreign investors.
"From here gold may come under further pressure, with direction derived from moves in the FX market," MKS Capital senior trader Alex Thorndike said in a note.
"I think a $1,270-$1,300 range should hold into next week," Thorndike added. "The market will now look to next week's (Fed meeting) minutes for any further information on a tapering timeline, which of course will influence gold and silver."
Hedge fund Paulson & Co maintained its stake in SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, in the third quarter after slashing its holding by more than half in the second quarter.
However, some money managers and pension funds, including PIMCO, continued to cut their gold ETF holdings, sparking fears that the exodus in gold led by institutional investors in the first half will continue as the economy improves.
The fund has seen more than 450 tonnes in outflows this year, driving holdings to their lowest since early 2009 at 865.71 tonnes.
Silver fell 0.7 percent to $20.59 an ounce.
Spot platinum was down 0.3 percent at $1,439.24 an ounce. Spot palladium fell 0.4 percent to $732.97 an ounce.