Gold was on course for its biggest weekly fall in two months despite edging higher on Friday, a day after a two per cent slide on expectations for a US interest rate rise.

Investors took some profits on Thursday on concern that strong gains in January, which have put prices on track for their biggest monthly rise in 1-1/2 years, would not be sustained.

Spot gold was up 0.6 per cent at $1,263.35 an ounce at 1245 GMT, while US gold futures for February delivery were up $8.20 an ounce at $1,262.80.

Gold is up 6.7 per cent so far this month on uncertainty over European stability, after the Swiss National Bank scrapped the franc's peg to the single currency and the European Central Bank said it would pump billions into the economy.

Expectations that the United States will press ahead with its first interest rate rise in nearly a decade later this year pulled the metal back from five-month highs, however, setting it up for its biggest weekly drop since late November.

"We've seen these sentiment-driven recoveries in the gold market a couple of times in the past two years, with the start of last year being one example, when it got support from theUkraine crisis, before fading," Julius Baer analyst Carsten Menke said. "We think this is very much comparable to what we saw last year."

"We're expecting the first interest rate hike early in the fourth quarter, in October," he added. "That's when we think there will be more pressure on gold, because people realise that the interest rate cycle is moving against then."

Appetite for physical gold in Asia overnight remained muted despite lower prices, as buyers awaited further clues on the next direction of trade after a choppy month.

Investors will next be eyeing US fourth-quarter gross domestic product data due out at 1330 GMT.

Recent weakness across precious metals is likely being driven by long liquidation, UBS said in a note on Friday, as participants look to square positions and book profits ahead of month-end.

"In terms of positioning, gold is most at risk after net longs jumped by as much 58 percent since the beginning of the year," it said. "Silver comes in next with a 48 percent increase in net longs."

Silver was up 0.1 per cent at $16.94 an ounce. Spot platinum was up 0.2 per cent at $1,222.36 an ounce, while spot palladium was up 0.5 per cent at $776 an ounce. - Reuters