Gold fell on Friday as the dollar rallied, notching its biggest weekly decline this year, and the metal remained vulnerable to drop further after a tumble earlier in the week shook bullion investor confidence.

Losses in crude oil, euro and U.S. equities weighed on bullion prices, which posted a 3.5 percent weekly decline.

Further profit-taking was possible, as one or more large funds possibly sold after U.S. Federal Reserve Chairman Ben Bernanke did not signal another round of monetary easing was imminent, sparking a 5 percent sell-off on Wednesday.

While some analysts view gold's sudden pullback as an aberration, others say that the metal could fall further after it repeatedly failed to stay above $1,800 an ounce.

Gold's inability to make a more convincing comeback implies that the correction might not be over yet, said James Steel, chief commodity analyst at HSBC.

Steel said that the metal looked vulnerable due to its recent surge of speculative net longs in U.S. futures. However, a recent oil rally and possible emerging-market or central-bank buying at lower prices could support gold.

Spot gold was down 0.3 percent on the day at $1,711.60 an ounce by 2:36 p.m. EST (1936 GMT). Its 3.5 percent weekly drop was its biggest since mid-December.

Despite this week's pullback, the metal is still 9 percent higher year after the Fed said in January it would keep U.S. interest rates near zero until at least 2014.

Gold started the week with a rally to a 3-1/2 month high on economic uncertainty after the European Central Bank gave half a trillion euros of cheap loans to banks.

However, sentiment turned bearish when some investors interpreted the ECB move and Bernanke's remarks the possible end of further monetary easing.

U.S. gold futures for April delivery settled down $12.40 at $1,709.80 an ounce.

Trading volume was about 25 percent below 30-day average, preliminary Reuters data showed, reversing sharply above-norm turnover in the previous two sessions.

Spot silver was down 2.3 percent at $34.61 an ounce. The metal fared better than bullion with a less than 2 percent decline for the week, and still up 25 percent for the year.

CHART BEARISH, ETF RESILIENT

On charts, gold's present pattern resembled an initial break and acceleration in early 2006 before bullion resumed its long-term bull run, said Tom Fitzpatrick, chief technical strategist of CitiFX, Citigroup's technical research unit.

In the near term, there is a real danger that we could see better buying levels in the region of $1,600, he said.

Highlighting the resilience of investors, holdings of gold in the world's largest exchange-traded products, a measure of shorter-term shifts in investor appetite for bullion, rose a record.

Bullion held by the world's top gold ETFs tracked by Reuters hit an all-time high of more than 70.76 million ounces, having their largest net inflows this week since early January.

Suki Cooper, precious metals analyst at Barclays Capital said investor appetite for gold remained healthy due to decent physical demand, negative real interest rates and longer-term inflationary concerns.

Platinum group metals edged lower despite a 16 percent rise in U.S. auto sales in February. The annual car sales rate was the best in four years, helped by a surprising sales gain by General Motors Co (GM.N) and strong results from Chrysler Group LLC and Ford Motor Co (F.N).

Platinum was down 0.2 percent at $1,692.99 an ounce, and palladium fell 0.5 percent to $710.72 an ounce.