Gold pellets
Gold pellets Lisi Niesner/Reuters

Gold was slightly higher Friday and headed for its biggest weekly gain in more than a month, shrugging off the credit rating downgrade of Spain ahead of a G20 meeting whose agenda will be dominated by the euro zone debt crisis.

Ratings agency Standard and Poor's downgraded the long-term credit rating of Spain by one notch on Friday, just as finance ministers and central bank governors get ready to pressure Europe to act swiftly to tackle its financial woes at a weekend meeting.

The euro reversed early minor losses and edged higher against the dollar, as investors remained confident European policymakers will be able to contain the debt crisis.

The bar is very high for Europe credit news to be considered 'bad' beyond what is priced in, said a Singapore-based trader.

My sense is that a lot of premium has been spent and cash hoarded insuring against the worst-case scenario.

Spot gold inched up 0.3 percent to $1,671.80 an ounce by 0633 GMT, on course for a rise of 2.1 percent from a week earlier, its biggest weekly gain since early September in the run-up to a record above $1,920.

U.S. gold also gained 0.3 percent to $1,673.50 an ounce in thin volume.

On the spot gold chart, the 5-day moving average was close to cross above the 20-day moving average.


UBS reduced its 2011 average gold price to $1,615 from $1,665 to allow for mark-to-market adjustments and the impact of a stronger dollar, but kept its 2012 forecast at $2,075.

Our core view is that ongoing global macroeconomic disappointments, the inevitability of further negative turns in the European sovereign debt crisis, and low business, consumer and investor confidence will lead to gold being increasingly used as the line of defense against negative market outcomes, the bank said in a research note.

The most serious risk to gold is a rapid deterioration in bank funding and escalating liquidity concerns, it added.

The bank said its physical gold sales to India so far this year rose 10 percent on the year, suggesting resilient buying interest in the world's biggest gold consumer in the face of higher prices.

Besides physical gold, Indians are likely to invest more in gold-backed exchange-traded funds, as a sagging stock market disappoints and high inflation eats into savings, the World Gold Council said.

China, the world's second-largest gold consumer and biggest gold producer, said its inflation in September eased from the previous month, but the stubborn food price pressures will deter the central bank from loosening its policy any time soon.

High inflation has driven many retail investor in China to bullion, which his seen as a good hedge against rising prices.

Spot platinum gained 0.6 percent to $1,537.49, posting its biggest weekly rise in about two months of 3.2 percent, snapping five weeks of consecutive losses.