Gold fell on Friday as investors sought riskier assets amid optimism the United States and China may reach a trade deal, although a pause in U.S. interest rate hikes kept bullion on track for a second weekly increase.
Spot gold fell 0.3 percent to $1,317.59 per ounce at 0614 GMT. Prices rose to $1,326.30, their highest since April 26, on Thursday and are set to gain 1.1 percent for the week.
U.S. gold futures were down 0.2 percent at $1,317.80 per ounce.
U.S. President Donald Trump said on Thursday he will meet with Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as the top U.S. negotiator reported "substantial progress" in two days of high-level talks.
"If there is real progress on the trade talks, that could hurt gold because that better outlook would mean the (U.S. Federal Reserve's) accommodative stance will not come into play," said Michael McCarthy, chief markets strategist at CMC Markets, referring to the U.S. central bank's intention to halt raising interest rates.
Investors often sell gold to buy other asset classes when interest rates rise since bullion does not pay interest.
Global equity prices rose, cheering the hopes of a deal.
"There would be concerns with the gold bulls in that scenario, but markets generally have become a little weary about responding to announcements from the White House. Too many have proved to be contradicted in the near future," McCarthy said.
Spot gold rose nearly 3 percent in January, mostly on hopes that the U.S. Federal Reserve would halt its multi-year rate hiking cycle.
The central bank said Wednesday it would hold interest rates steady and would be patient in lifting borrowing costs further this year as it pointed to rising uncertainty about the economic outlook.
Adding to global worries, factory activity in China, the world's second-largest economy, shrank by the most in almost three years in January.
Also, investor caution appears to be mounting ahead of U.S. jobs data to be released later on Friday, with analysts unsure what impact the government shutdown might have had on employment.
Reflecting investor interest in gold, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, were at their highest since June on Tuesday.
"From a technical perspective, support for gold is now at $1,310 and more strongly at the $1,300 level," said Ronan Manly, precious metals analyst with BullionStar, adding the metal was facing resistance at $$1,325 per ounce.
Palladium rose 0.2 percent to $1,345 per ounce, while platinum fell 0.6 percent to $815.
Silver fell 1 percent to $15.92 per ounce after rising to its highest since July 2018 at $16.19 in previous session.