SINGAPORE Gold eased from a two-week high on Friday, giving back some of its sharp overnight gains, but was set to post its strongest week in five on the Federal Reserve's caution over raising U.S. interest rates and risk-off sentiment in the market.
Most Asian shares fell to three-week lows on Friday, while the yen retreated slightly from a 17-month high against the dollar.
Spot gold had eased 0.4 percent to $1,235.50 an ounce by 0653 GMT on profit taking after its 1.5 percent gain overnight. The metal had hit a two-week high of $1,243.50 in the previous session.
For the week, the metal has gained 1.1 percent, its biggest gain since the week ended March 4.
"Risk appetite waned with renewed concern over the power of monetary policy. A weaker U.S. equity market lent support to global volatility and put gold again at centrestage for investors," ANZ analysts said in a note.
Bank shares led losses in Europe and the U.S. markets on Thursday, amid talk of more lay-offs and cutbacks planned by Europe's major lenders as they struggle with zero rates.
The dollar was hurt by a cautious Fed tone on interest rate hikes. Minutes from the Fed's March policy meeting released on Wednesday showed policymakers debated whether an interest rate hike would be needed in April, although a consensus emerged that risks from a global economic slowdown warranted a cautious approach.
A slower pace in hiking rates would boost non-interest-paying gold, while hurting the dollar.
Gold gained 16 percent in the first quarter of the year, its best quarterly performance in nearly 30 years, on speculation the Fed may delay hiking rates.
Markets were closely watching comments from Fed officials for clues about the timing of any rate hikes.
The U.S. economy is on a solid course and still on track to warrant further interest rate hikes, Fed Chair Janet Yellen said on Thursday. San Francisco Fed President John Williams said at least two interest-rate hikes this year is the "right course" so long as the U.S. economy continues to grow, businesses add jobs, and inflation picks up as he expects.
The Fed could stoke financial instability and set the stage for a recession if it waits too long to raise interest rates further, Kansas City Fed President Esther George said on Thursday.
(Reporting by A. Ananthalakshmi; Editing by Joseph Radford and Sunil Nair)
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