Gold stayed nearly flat in thin trade on Friday, on track to log declines for two of the past three weeks as investors took to the sidelines ahead of a key U.S. option expiration and a Federal Reserve policy meeting next week.
The metal inched down despite usually bullish factors including a weaker dollar, an oil rally and gains in U.S. equities on better-than-expected results from General Electric.
Option traders said gold prices could gravitate toward the $1,650 call strike ahead of next week's expiry of COMEX May options. Open interest for the popular strike has nearly doubled over the last 30 days despite dwindling volume in futures, dealers said.
There are over 12,000 lots (1.2 million ounces) of open interest on the COMEX expiry next Wednesday for the $1,650 strike, TD Securities precious metals analysts said in a note.
This is clearly starting to draw market interest and will likely mean the price does not deviate significantly away until expiry, the note said.
Spot gold edged down 0.1 percent to $1,641.39 an ounce by 11:42 a.m. EDT (1542 GMT).
This week, bullion has held within its narrowest weekly range in more than a year. It is on track for a 1 percent weekly decline following a four-day drop earlier in the week.
U.S. gold futures for June delivery were up $1.30 at $1,642.70 in extremely low trading volume.
Gold is struggling for direction as buyers await the outcome of International Monetary Fund and World Bank meetings this weekend, at which plans to tackle the euro zone debt crisis will be discussed, and the Federal Reserve's meeting on U.S. monetary policy next week.
Gold has lost around $150 an ounce since late February after a strong run of U.S. economic data dashed hopes of further monetary easing by the Fed.
PHYSICAL BUYING WEAK
Appetite for physical gold in India, historically the world's top bullion consumer, has been lackluster ahead of the gold-buying festival of Akshaya Tritiya on Tuesday next week, as high prices and rupee weakness curbed interest in the metal.
UBS said in a note that current physical demand has been underwhelming, and that offered little assurance that gold can easily find support on any further price drops.
Silver was down 0.2 percent at $31.66 an ounce, while spot platinum edged up 0.2 percent at $1,577.74 an ounce and palladium rose 1.9 percent to $671.97 an ounce.