Gold edged higher on Friday, staying on track for its third straight weekly gain, helped by a weaker dollar and hopes of a prolonged period of easy monetary policy.

Bullion has gained nearly 10 percent in three weeks – its biggest such winning streak in nearly two years - after the Federal Reserve assured financial markets it would only start phasing out its stimulus when it was sure the U.S. economy was strong enough to stand on its own.

Spot gold had climbed 0.1 percent to $1,334.90 an ounce by 0652 GMT, nearly $160 more than the three-year low hit on June 28.

"The mood towards gold has definitely changed in recent weeks as the market thinks most of the bad news is priced into gold already," said Danny Laidler, head of ETF Securities' Australia and New Zealand business.

"I wouldn't say people are bullish gold but they are definitely less bearish," said Laidler, adding that outflows from the firm's gold-backed exchange traded fund (ETF) have slowed.

Gold has still lost a fifth of its value this year as investors feared a strong recovery in the United States might prompt the Fed to scale back its $85 billion monthly bond purchases. Outflows from gold ETFs have also weighed on prices.

Holdings of SPDR Gold Trust, the world's largest gold ETF, fell 0.3 percent to 927.36 tonnes on Thursday – their lowest in four years.

"The fundamentals for buying gold are still there – loose monetary policy, concerns over the Middle East and Europe, and (economic) data from the U.S. and China not being as positive as expected," Laidler said.

CHINA DEMAND

Physical demand in China has been key to supporting gold prices this year amid the exit from ETFs.

Data from the Shanghai Gold Exchange shows that physical deliveries have totalled 1,198.4 tonnes so far this year. The exchange delivered 1,140 tonnes in all of 2012.

China's gold demand could hit a record 1,000 tonnes this year, the World Gold Council said on Thursday, which means it would overtake India as the world's biggest bullion consumer.

India is seeing a slowdown in demand as the government tightens rules to curb gold imports and tame a record trade deficit. Premiums in India jumped to $20 an ounce over London spot prices on Thursday due to short supplies. – Reuters