BENGALURU - Gold eased for the second straight session to hit a one-week low on Friday as the dollar rose, putting the metal on track to post its biggest weekly fall in five ahead of the U.S. Federal Reserve's interest rate decision next week.
Spot gold was 0.3 percent lower at $1,238.29 per ounce as of 1235 GMT. Earlier in the session, prices hit their lowest since Dec. 6 at $1,236.80. The metal is down about 0.8 percent so far this week.
U.S. gold futures were down 0.4 percent at $1,242.20 per ounce.
The dollar gained as investors turned nervous about an economic slowdown in China and was further supported by weakness in the euro and pound. A firm dollar makes gold more expensive for holders of other currencies.
"It seems to be a broader market sentiment as there is a drop across the precious complex ... The dollar has strengthened and that's being reflected in gold's downward movement," said Capital Economics analyst Ross Strachan.
Markets are awaiting the Federal Open Market Committee (FOMC) meeting on Dec. 18-19, where the U.S. central bank is widely expected to raise interest rates for the fourth time this year.
"The more interesting aspect would be what the indications are from the Fed for their plans for 2019 as we've seen a shift in market expectations on how much tightening we might see next year, so comments leading to that situation would be keenly watched," Strachan said.
Gold has fallen around 9 percent since April, hit by rising U.S. interest rates and as investors chose the dollar as a safe haven rather than gold amid the U.S.-China trade dispute.
Bullion is also on track to post an annual decline of about 5 percent, after rising for the previous two years.
However, analysts are more optimistic on gold in 2019.
"We expect the rate of hikes to pause in second half of 2019, which may halt the dollar's recent strength and support gold prices," analysts at ANZ said in a note.
"We see gold as an important portfolio diversifier, amid rising equity volatility next year. The Fed's pause in interest rate hikes, Brexit and other political risks, along with slowing economic growth should bode well for gold market."
Among other precious metals, spot palladium eased 1.2 percent to $1,245.30 per ounce, having hit an all-time high of $1,269.25 in the previous session. The metal was on track for its third week of gains, with prices up about 1.2 percent so far.
Silver fell 1.1 percent to $14.60 per ounce.
Platinum was down 0.2 percent at $791.50 per ounce, but was set to post a small weekly gain after declining for five weeks.