Gold eased on Friday after an earlier rally to six-week highs ran out of steam, but remained on track for its biggest weekly gain since mid-January as more bad economic data from China battered financial markets.

World stocks tumbled towards their worst week of the year, while the dollar index hit a near eight-week low after the China factory report added to doubts that the Federal Reserve will be able to raise interest rates next month.

Gold had already rebounded this week from July’s 5-1/2 year low, boosted by minutes of the Fed’s last policy meeting, which dented expectations for an imminent hike in US rates.

Spot gold was down 0.2 per cent at $1,150 an ounce at 0954 GMT, off an earlier high of $1,168.40, while US gold futures for December delivery were down $3.20 an ounce at $1,150. Spot gold is still up more than 3 per cent this week.

“Everyone’s following the Fed, effectively,’’ Natixis analyst Bernard Dahdah said.

“A September hike is seen as less likely than it was a week ago... If you look at the interest rate probability according to the Fed fund futures, on August 13 it was showing 50 per cent for September, and now it’s down to 32 per cent.’’

“The latest move is related to disappointment in that, and the dollar has weakened, which is related to China.’’

The dollar hit its lowest in almost eight weeks against a basket of major currencies on Friday, after the weak factory data from China.

Gold has come under heavy pressure this year from expectations that the Fed would hike rates for the first time in nearly a decade, lifting the opportunity cost of holding non-yielding bullion while boosting the dollar.

Appetite for risk was further dented in Europe after Greek Prime Minister Alexis Tsipras resigned on Thursday.

“Risk aversion is rising again in financial markets, weighing on equities and in turn lifting gold,’’ Julius Baer said in a note. “Gold could remain supported in the short-term by further short-covering and safe-haven demand.’’

The world’s largest gold-backed exchange-traded fund, New York's SPDR Gold Shares, reported an inflow of 3.6 tonnes on Thursday, its first in just over a week.

Among other precious metals, silver was down 1.1 per cent at $15.38 an ounce, while platinum was down 1 per cent at $1,019.25 an ounce and palladium was down 2.4 per cent at $603.25 an ounce.

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