Gold dips, silver pares gains as dollar strengthens

Gold slipped and silver pared gains on Friday as the dollar strengthened against the yen, but both metals were still headed for weekly gains.

The dollar rose about 1 per cent against the yen on Friday, after Bloomberg reported that the Bank of Japan was considering applying negative rates to its lending programme for financial institutions. A stronger greenback makes the dollar-denominated precious metals expensive.

Gold fell 0.3 per cent to $1,244.80 an ounce by 0719 GMT, after hitting a five-week high of $1,270.10 an ounce on Thursday.

Spot silver was up 0.4 per cent at $17.065 an ounce, after earlier climbing as much as 1 per cent. It had risen to a 11-month high of $17.695 in the previous session.

Silver is up 5.4 per cent for the week, while gold is up 1 per cent.

But Goldman Sachs maintained its bearish view on gold and other commodities on Friday, and reiterated its recommendation to short gold.

"We continue to expect that the strengthening of the US labour market will force the Fed to hike rates three times this year, which will lead to a stronger dollar and a gradual increase in US real rates, pushing gold down," Goldman analysts said in a note.

Gold had posted its best quarter in nearly 30 years in the three months to March on expectations that the Federal Reserve would not be able to raise US interest rates this year due to volatile markets and concerns over the Chinese economy.

Recent data from China has showed new debt fuelling a recovery in factory activity, investment and household spending, stoking appetite for metals used in manufacturing.

Copper jumped to a four-week high, while steel soared to a 19-month top on Thursday.

Silver's rally this week has also been helped by optimism over Chinese growth, and a break above key chart resistance.

HSBC analyst James Steel said the gold and silver rallies could be running into headwinds.

"For silver, we favour the market above $17, but expect volatility and further gains may be hard to hold. On the positive side, it appears that solar-panel demand is up and retail demand is solid for silver," Steel said, adding that gold may need to consolidate around $1,250 before moving higher.

Among other precious metals, platinum was set to log its best week in seven with a 4.5 per cent rise. It had climbed to a 9-1/2-month high of $1,043.72 an ounce on Thursday.

Palladium was poised for a weekly rise of 7 per cent, after climbing to its highest since November on Thursday.