Gold prices ticked higher on Friday as the dollar retreated, but it was vulnerable to further losses ahead of key U.S. economic data later in the day and an ECB meeting next week.
"Gold is slowly recovering from its weakness overnight now that the dollar/yen pulled back. The yen has been and continues to be a key driver," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.
"But overall the charts don`t look healthy. We took out the $1,215 level in gold last week and that`s raised the potential of a deeper correction," he said, adding that the key downside level was $1,205.
Spot gold was up 0.4 percent to $1,221.40 per ounce at 1220 GMT. It was up 0.5 percent for the week so far, which would be its biggest weekly gain since early June.
U.S. gold futures for August delivery rose 0.3 percent to $1,220.60 per ounce.
The dollar index and the dollar against the yen were both slightly weaker, pulling back from gains overnight after dovish comments from major U.S. policymakers reaffirmed market expectations that interest rates will rise very slowly.
A weaker greenback boosts gold, making the dollar-priced commodity cheaper for investors holding other currencies.
Investors remained cautious ahead of U.S. inflation data due later in the session.
"We remain neutral on gold at this point as the dollar`s short-term trend is inconclusive, allowing higher yields to fill the space and throttle any gold rallies," INTL FCStone analyst Edward Meir said.
The bets of a gradual path for U.S. rate hikes also boosted global share prices, which scaled to record highs on Friday, and diminished the attractions of gold`s safe haven qualities.
Meanwhile, holdings at the SPDR Gold Trust, the world`s largest gold-backed exchange-traded fund fell 0.43 percent to 828.84 tonnes on Thursday from 832.39 tonnes on Wednesday.
Silver prices rose 0.7 percent to $15.77 per ounce.
In silver, there was a sharp split between funds, which had largely sold off their record long position, and ETF investors, who had been recently buying, Hansen said.
"The funds are seeing the price action as negative and are scaling back. But we also know they are the ones that could make the quickest changes. A move above $16.20 could trigger quite a bit of accelerated buying from the funds."
Palladium gained 1.2 percent to $862.25 per ounce, set to end the week over 2 percent higher. Platinum rose 0.5 percent to $906 per ounce.