Gold dropped on Friday as the dollar rallied and after an apparently unfounded television report about an announcement from Egypt sparked more speculation President Hosni Mubarak could be stepping down.
But gold remains on track for its first weekly gain in 2011 after U.S. employment rose far less than expected in January, and after Federal Reserve Chairman Ben Bernanke indicated easy monetary policy would stay in the near term.
Tom Pawlicki, precious metals and energy analyst at MF Global, said gold should benefit as a safe haven on fears that unrest in Egypt would spread across the Middle East despite rumors that Mubarak could resign.
"Since the report has come out, it instilled doubt in the market's mind so I don't know how bullish it can be," he said, referring to a possible drop in gold demand should Mubarak step aside now.
Traders said the rumor seemed to stem from a brief report on U.S. television station CNBC, but more than two hours later there was no news on Egyptian TV about any announcements or possible transition of power. There were no reports from other media outlets suggesting any imminent news from Egypt.
U.S. crude oil futures fell sharply as the report set off speculation that protests in Egypt would end soon. Foreign exchange and equities markets had minimal reactions.
Spot gold dropped 0.3 percent to $1,348.59 an ounce by 2:30 p.m. EST (1930 GMT). U.S. gold futures for April delivery fell $3.90 to $1,349.10.
Analysts said that even as U.S. jobs barely grew in January, gold failed to benefit further from the mixed payrolls report, which also showed that the unemployment rate fell to its lowest since April 2009.
"I think the market's confused," Credit Agricole analyst Robin Bhar said. "On the one hand we didn't get any rise to speak of in the payrolls, but we got a big fall in the unemployment rate, and a big gain in the manufacturing sector."
Bullion was also pressured as the dollar rose against the euro on the U.S. jobless number.
Gold is set for its first weekly gain in five weeks, having posted a strong session on Thursday after Bernanke warned that delays in raising the United States' debt limit could have "catastrophic" consequences, indicating monetary policy would stay accommodative.
HEAVY PRESSURE
The precious metal had faced heavy pressure last month, when bullion posted its first monthly decline in six months after signs that the global economy had started the year on a solid footing with easing worries about Europe's debt crisis.
However, the strength of the economic recovery remains a major question mark for gold, analysts said.
"The medium-term factors for gold -- currency debasement, sovereign debt, inflation -- haven't disappeared and will come back to underpin the market," Bhar said. "But at the moment, why buy gold? There are lots of better things to buy."
Asian buyers remained largely absent, with the market quiet in China, Hong Kong and Singapore during the Lunar New Year holiday there and Indian consumers put off fresh buying by Thursday's price volatility.
Gold holdings of exchange-traded funds inched higher, with those of the largest, New York's SPDR Gold Trust, edging up just over two tonnes on Thursday.
Silver gained 0.1 percent to $28.94 an ounce. Holdings of the largest silver ETF, the iShares Silver Trust, fell more than 30 tonnes to their lowest since November on Thursday.
Platinum group metals touched multi-year highs, with platinum reaching its loftiest level since July 2008 at $1,858.50 an ounce and palladium a 10-year peak at $831.
Platinum was later up 0.3 percent at $1,841.24 and palladium down 0.3 percent at $814.47. (Additional reporting by Jan Harvey in London; Editing by Dale Hudson)
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