Gold rose on Friday as investors judged that a sell-off sparked by a rise in US interest rates this week had run its course and the dollar weakened, making bullion cheaper for holders of other currencies.

Spot gold was up 0.2 per cent at $1,255.80 an ounce at 0959 GMT, having hit $1,251.05, its weakest since May 24. US gold futures were 0.2 per cent higher at $1,257.2 an ounce.

Gold was on track for a second weekly loss and has fallen more than 3 per cent from a high of $1,295.97 on June 6 as investors braced for the US Federal Reserve to raise interest rates and signal its policy outlook on Wednesday.

Bullion is sensitive to higher interest rates because they push bond yields higher, increasing the opportunity cost of holding non-yielding gold, and tend to boost the dollar.

“Gold has been spooked by the hawkish tone from the Fed which triggered some long liquidation both in futures and exchange-traded funds,” said Saxo Bank analyst Ole Hansen.

Holdings in the SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, fell 1.5 per cent to 27.4 million ounces in the week to Thursday. Fears of more rate hikes to come this year were heightened on Thursday by strong US economic data.

But Hansen said a consistent run of strong data would be needed to give direction to the market. “Until we get that gold will trade sideways with probably a slight negative bias,” he said.

Technical support for gold was around the 100-day moving average at $1,246-$1,250, Alex Thorndike, a trader at MKS PAMP, said in a note.

In other precious metals, silver was 0.4 higher at $16.78 an ounce but was headed for a weekly decline of 2.1 per cent, its biggest in six weeks.

“Price action in both gold and silver of late seems to imply that traders still have plenty of short-term long positioning on their books,” said OANDA analyst Jeffrey Halley.

“It may leave both metals vulnerable to a further washout into the weekend.”

Platinum was 0.2 per cent higher at $921.50 an ounce, after hitting $913.50, its lowest in more than a month, on Thursday. Palladium was up 0.6 per cent at $875.45 an ounce but on track for its first weekly decline in four weeks.

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