Gold edged higher as caution dogged the financial markets ahead of U.S. growth data due later, having earlier hit a near four-month low as a better economic outlook dented safe-haven buying of the metal.
Spot gold was bid at $1,313.50 an ounce at 1220 GMT against $1,312.24 late in New York on Thursday. U.S. gold futures for February delivery fell $5.20 to $1,313.20.
The metal had touched a low of $1,308.00 an ounce, having fallen 2.6 percent on Thursday after a run of firmer than expected U.S. economic data boosted confidence in the recovery.
Traders will now be closely eyeing a U.S. fourth-quarter growth report due at 1330 GMT. The data is expected to show the U.S. economy gathered speed in the last quarter.
One of the dangers in the gold price this year is that if confidence rises, and U.S. growth and the economic recovery continues, gold's allure as a hedge against risk is somewhat diluted, said VM Group analyst Carl Firman.
At the moment you probably find that money is going into riskier assets, perhaps with higher returns.
European stocks retreated as traders took to the sidelines ahead of the data after a softer session in Asia, and the dollar was little changed versus the euro. .EU
The single currency remains supported, however, by the European Central Bank's hawkish tone on interest rates, analysts said, with markets pricing in more than one 25 basis point hike by year-end.
With the Fed showing few signs of tightening monetary policy, this may lead to further dollar weakness versus the euro this year, which typically would support gold. However, the usual inverse link between the two has eased in the last year.
Physical gold buying in Asia lent some support to prices on Friday as the previous session's dip attracted some buyers back to the market, though Chinese buying is expected to ease after the Lunar New Year next week.
ETF INVESTMENT EASES
Investment demand for gold has been soft this year, with holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, down another 3 tonnes on Thursday.
London's ETF Securities reported a 1.3-tonne outflow from its gold exchange-traded products on the same day.
The Wall Street Journal reported on Friday that hedge fund SHK Asset Management liquidated a U.S. gold futures position this week valued at over $850 million, more than 10 percent of the main U.S. futures market.
While the outlook for ETF and futures investment is uncertain, physical demand for gold, particularly from Asia, is expected to be a major factor underpinning prices this year.
The China Gold Association estimates... that the demand for gold in the first half of the year will rise by 15 percent year on year, citing growing demand for alternative investments and protection against inflation, said Commerzbank in a note.
Already last year, China's gold demand posted double-digit growth, according to the World Gold Council, it said.
Spot silver was bid at $26.70 an ounce against $26.88. Holdings of the world's largest silver-backed ETF, the iShares Silver Trust, fell to 10,426.43 tonnes on Thursday from 10,447.70 tonnes.
Silver ETF holdings fell by 122 tonnes on the week (and) are down 550 tonnes from their peak, said RBS Global Banking & Markets in a weekly report. ETF holdings represent 66 percent of 2010 world mine output.
Platinum was at $1,784 an ounce against $1,781 and palladium was at $804.47 against $802.22.