Gold held near two-week highs on Friday, on track for its biggest weekly jump since January, after the US Federal Reserve sounded a cautious note on interest rates, arresting a dollar rally.

The US currency headed for its worst weekly performance against the euro in 18 months after the Fed downgraded its growth and inflation projections, signalling it is in no rush to push borrowing costs to more normal levels.

Spot gold was at $1,171.45 an ounce at 1305 GMT, little changed from Thursday, while US gold futures for April delivery were up $1.70 an ounce at $1,170.70. Spot prices have risen one per cent this week, snapping two weeks of losses.

Gold prices hit a four-month low earlier this week and are down 1 percent this year, having come under pressure from expectations that the US central bank is on track for its first interest rate hike in nearly a decade.

Such a move would boost the dollar and lift the opportunity cost of holding non-yielding bullion. The Fed, however, indicated it preferred a more gradual path.

"For the short term, gold has had a stay of execution," Mitsubishi analyst Jonathan Butler said. "With yields on Treasuries coming off a bit in the last few days, the environment is relatively benign for gold to make some gains over the next three or four weeks."

"By the time of the April (Fed meeting), we might start on that down trendline once again, as expectations of rate rises are priced in," he added. "I think ultimately, gold is due another leg down."

Post-Fed, the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, saw its first inflows since February 20, also boosting sentiment.

In the physical markets, Chinese buying was steady, with premiums on the Shanghai Gold Exchange staying at a robust $6-$7 an ounce on Friday. Sustained physical buying could further support prices.

Silver was up 0.6 per cent at $16.18 an ounce, while spot platinum was down 0.1 per cent at $1,122.75 an ounce.

Platinum continued to trade at about a $50 discount to gold, a factor that is likely to stoke physical demand according to the Perth Mint, which is ramping up production of its platinum coins.

Palladium was up 0.1 per cent at $765.75 an ounce, though it was the worst performing precious metal of the week, down nearly three per cent. - Reuters