Gold inched up on Friday as optimism over US-China trade talks pressured the dollar, but signs that the US Federal Reserve could raise interest rates again this year kept prices below a 10-month high hit earlier this week.

Spot gold had risen 0.2 per cent to $1,325.52 per ounce as of 0548 GMT. The metal was headed for a second straight weekly rise, up almost 0.4 per cent this week. US gold futures were subdued at $1,328.1 per ounce. “On a day-to-day basis, gold is a function of changing currency markets and the US dollar. Medium outlook is a lot more to do with geopolitical issues and yields,” said Kyle Rodda, a market analyst with IG Markets.

The dollar index against a basket of six major currencies was set to decline about 0.3 per cent this week, which could be its biggest weekly fall in a month. “The fact that gold was overbought-driven very much by a new yield environment and tensions around the world has helped keep gold prices elevated,” Rodda said.

Gold had hit a 10-month high of $1,346.73 on Wednesday, but minutes from the Fed's January policy meeting indicated there might in fact be a rate hike this year, erasing gains in gold. “Dovish signals from U.S. Federal Open Market Committee officials for the shorter term have kept global equities steady whilst applying bearish pressures on the non-interest bearing asset,” Phillip Futures said in a note.

Higher interest rates reduce investor interest in non-yielding bullion. “Gold's focus is now more on key levels than key events, “ said Ronan Manly, a precious metals analyst at BullionStar Singapore. “The main target is still the technically important area between $1,350 and $1,360 above which would be a one year high.”

Markets were also looking for further indications of progress on trade talks with US and Chinese negotiators resuming high-level talks on Thursday to hash out a deal that could end their trade war, just over a week before a US-imposed deadline.

Indicative of investor sentiment toward bullion, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.63 per cent to 789.51 tonnes on Thursday. Meanwhile, palladium was up 0.3 per cent to $1,472.50 per ounce, having surpassed the key $1,500 level for the first time on February 20.

The autocatalyst metal was on track for a third straight week of gains, up nearly 3 per cent. Platinum gained 0.4 per cent to $822.50, and was set for its best week since early January. Silver inched higher to $15.84 per ounce. It was poised to snap two consecutive weekly losses.

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