Molten gold
Molten gold Reuters

(REUTERS) -- Gold was largely unchanged on Friday, but posted its second-biggest weekly decline this year due to an early week drop after the FederalReserve withheld additional easing amid a string of encouraging U.S. economic data.

The metal fell 1 percent earlier in the session after top gold consumer India said it would double import duties onbullion.

Oil's rally, the dollar's weakness and higher U.S. consumer prices in February prompted gold investors to cover shortpositions from earlier this week.

Some funds might have exited the gold trade after the S&P 500 stock index this week hit 1,400 for the first time infour years after a strong run of U.S. job and manufacturing data confirmed a decent pace of economic recovery.

The metal's 3 percent slide this week removed gains in January based on expectations of further U.S. monetary easing.The Fed offered few clues this week on any further action afterit said in late January it would keep rates near zero for thenext few years.

With bullion now trading well below its long-term technical support, gold could extend losses in the short termbefore recovering, analysts said.

Every retracement within this bull trend (since 2001) has managed to find a floor close to the 55-week average, said TomFitzpatrick, analyst at CitiFX, Citigroup's technical research unit.

In the next few weeks, gold could test a low at $1,580 an ounce, which could set the stage for another leg higher,Fitzpatrick said. Spot gold eased 0.1 percent at $1,656.54 an ounce by 2:53 p.m. EDT (1853 GMT).

U.S. April gold futures settled down $3.70 at $1,657.50 an ounce. Volume was largely in line with its 30-dayaverage but lower than its previous session, preliminary Reuters data showed.

U.S. inflation data for February showed consumer prices rose by the most in 10 months as the cost of gasoline spiked, butthere was little sign that underlying inflation pressures were building up.

Also weighing on gold this week was a rise in 10-year U.S. Treasury yields, a gauge for short-term U.S. interest rates,which topped 2.3 percent, their biggest one-week rise since early July 2011.

Silver is the only precious metal that ended higher for the day, but it was down 4.5 percent for the week. The weeklydecline may have set the stage for even steeper losses with a potential drop to $27.50 an ounce, analysts said.

Barclays Capital technical analysts said silver had been in the process of unwinding its oversold condition. But withsilver's break below $33.25. they said silver has reverted the trend and is targeting $30 per ounce.

Silver was up 0.2 percent on the day at $32.56 an ounce.

Gold imports to India, the world's top importer, are likely to fall significantly in 2012 as the government's decision todouble import duty to 4 percent is seen squeezing local demand, especially for jewelry, industry officials said.

Bombay Bullion Association President Prithviraj Kothari said the increase would prompt a rise in smuggled gold and impact thejewelry sector more than the investment sector.

We will have to wait and see how (the import duty) works but from the outlines we are seeing, it will be slightly bearishfor gold in the immediate future, MKS Finance head of trading Afshin Nabavi said.

Platinum fell 0.6 percent to $1,670.24 an ounce, while palladium was down 0.5 percent on the day at $697.22.