Gold recovered some lost ground on Friday after earlier hitting near three-year lows, but stayed on track for its biggest weekly drop in almost two years after the Federal Reserve signalled an end to easy money.
The precious metal rebounded more than 1 percent as world shares, bonds and commodities steadied on Friday, a day after a sharp sell-off triggered by plans by the U.S. Federal Reserve to cut back its quantitative easing programme.
But that did little to offset Thursday's 5.4 percent price crash. Gold is still down more than 7 percent since last Friday, its biggest weekly fall since its drop from record highs in September 2011.
Spot gold was up 1.4 percent at $1,295.60 an ounce at 1001 GMT, having earlier hit its lowest since September 2010 at $1,268.89 an ounce.
"Quantitative easing was massively stimulative for precious metals, and we are now seeing that process going into reverse," Natixis analyst Nic Brown said.
"The effects of QE had been hugely positive for precious metals because they weakened the dollar and pushed medium-term interest rates to abnormally low levels, which removed most of the negative carry associated with holding gold."
"As you take away liquidity, you see a significant rise in longer-term interest rates, and 10-year yields shot up yesterday. That to us is the trigger (for lower gold prices)."
U.S. gold futures for August delivery were up $9.10 an ounce at $1,295.30, having earlier touched a near three-year low at $1,268.70.
The CME Group Inc, parent of the Chicago Board of Trade, raised initial margins for Comex gold after prices plunged to their lowest in three years on Thursday. Comex gold futures fell 6.4 percent, in heavy volumes.
"Almost 391,000 gold futures contracts were traded on the COMEX yesterday," Commerzbank said in a note. "This corresponded to 1,215 tons of gold, and was almost three times the previous average this month."
"Almost 169,000 silver contracts (26,200 tons) were traded, the biggest trading volume since prices collapsed in mid-April. It was likewise almost three times more on a daily basis than hitherto this month."
Investment interest in gold has waned this year, with holdings of physically backed gold exchange-traded funds - a popular way to invest in bullion since the financial crisis - falling more than 485 tonnes this year.
The largest, New York's SPDR Gold Trust, reported another 4.5-tonne drop in its holdings on Thursday, taking them to their lowest in more than four years at 995.35 tonnes, 26 percent below their December 2012 peak of 1,353 tonnes.
Traders reported an uptick in demand from China, the world's second-largest consumer of gold, however.
Silver also dropped to its lowest since September 2010 at $19.35, before recovering to $19.82 an ounce, up 1.3 percent. The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose to a near three-year high at 65.5 on Friday.
Spot platinum was up 0.3 percent at $1,360.50 an ounce, while spot palladium was the biggest riser, up 2.3 percent at $676.22 an ounce.