Gold slid to a 6-1/2 week low on Friday, setting the stage for its sharpest weekly drop since March 2009, hit by a sell-off in the commodities complex and with some traders citing selling in the precious metal to cover losses in other asset classes.

At 1134 GMT, spot gold fell to a $1,705.89 a troy ounce, having earlier hit a fresh session low at $1,698.54 -- its lowest level since August 8, as commodities came under heavy pressure in the wake of a rebound in the dollar.

A stronger dollar puts pressure on gold as it makes commodities priced in the U.S. unit more expensive for holders of other currencies.

Traders blamed gold's fall on distress selling by investors who have grown increasingly uncomfortable with the turmoil on the credit market and were looking to cover losses from other asset classes such as equities.

In an attempt to soothe investors, finance ministers and central bankers from the Group of 20 said they would take all steps necessary to calm the global financial system and said central banks were ready to provide liquidity.

But analysts said investors were likely to watch further developments on the global economy before piling further into gold, with the metal's recent volatility prompting some caution.

Gold hit a record high of $1,920.30 earlier this month. This week it has fallen almost 6 percent and is on track for its biggest weekly drop since early March, 2009. It is still up more than 20 percent in the year to date.

When gold is volatile like this a lot of buyers just sit on their hands and watch. They get nervous. Price volatility is destructive for investors because it erodes their confidence, said Ross Norman of Sharps Pixley.

People are looking for opportunities to buy into gold on dips. There's scope for upside here but I don't think it will race back towards $1,920 (an ounce)in a hurry.

U.S. gold futures shed more than 2 percent to $1,701 an ounce, the lowest since early August, and also headed towards its biggest weekly drop since early March, 2009.

SILVER NO SAFE HAVEN

Silver prices tracked losses in industrial metals. Spot silver fell 8 percent to $32.46 an ounce, its lowest since mid-May.

The Shanghai Gold Exchange will lift the daily trade limit for its silver forward contract to 12 percent from 10 percent from Sept. 26, it said in a statement on Friday

Meanwhile, holdings of the largest silver-backed exchange-traded-fund, New York's iShares Silver Trust fell 0.31 percent on Thursday from Wednesday.

The latest price trend show that silver is still not regarded as a safe haven, but rather as a precious metal with an industrial character, Commerzbank analysts said in a note.

We have a similar view and believe that while strong hands will soon take over the helm in the case of gold, silver could remain under pressure.

In platinum group metals, platinum slipped 2.4 percent to $1,638.99 an ounce, while spot palladium was flat at $640.49 an ounce.