Gold slips, but headed for biggest weekly gain in 2 years

Gold eased on Friday due to profit-taking after four days of gains but was on track for its biggest weekly gain in nearly two years on easing fears of an early end to US monetary stimulus that has boosted bullion's appeal as a hedge against inflation.

Bullion has lost nearly a quarter of its value this year on concerns the US Federal Reserve's USD 85 billion monthly bond purchases will be pared soon. Fed Chairman Ben Bernanke confirmed the fears in June, saying the rollback could start later in the year.

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But Bernanke on Wednesday suggested the bond purchases could last longer. And minutes from a June Fed meeting showed officials were divided over when to end the stimulus.

"A lot of folks out there had been talking about Fed buying less bonds starting from this September. That's why the Fed minutes really caught everyone off guard," said a precious metals trader in Hong Kong, adding that the tapering could now be pushed to next year.

Spot gold fell 0.6 percent to USD 1,277.40 an ounce by 0731 GMT. Bullion has gained close to 5 percent this week, on course for its biggest weekly climb since October 2011 when it rose 6.2 percent.

Comex gold and silver were trading near multi-week highs hit on Thursday.

Traders attributed gold's reversal to profit-taking and as physical demand slowed after the recent gain in prices.

Analysts said gold could face resistance crossing the USD 1,300 level. Spot gold hit a high of USD 1,298.36 on Thursday - its highest in nearly three weeks.

"Based on a purely technical basis, we view it as more likely for prices to ease," Phillip Futures analysts wrote in a note.

"The resistance at USD 1,300 is a strong one and prices have already shown great difficulty in breaking through."

Spot gold is expected to retrace to a support of USD 1,273 per ounce, as it failed to break the USD 1,302 resistance, Reuters technicals analyst Wang Tao said.

Many still expect gold to end lower this year as investors jump to rallying stocks, dumping holdings in gold-backed exchange traded funds, and physical demand slows.

Investors pulled USD 998.8 million from commodities and precious metals funds, up from withdrawals of USD 92.6 million in the prior week, data from Thomson Reuters' Lipper service showed on Thursday.