LONDON, Aug 22 (Reuters): Gold steadied above a two-month low on Friday after a five-day losing streak and was headed for its biggest weekly loss in five, hurt by strong US economic data and speculation that the Federal Reserve could hike interest rates sooner than expected.
Bullion was hit hard after minutes from the Fed's July meeting on Wednesday showed policymakers debated whether interest rates should be raised earlier given a surprisingly strong job market recovery.
The metal came under pressure on Thursday when a break below the 200-day moving average of $1,284 an ounce triggered stops losses - automatic sale orders placed by traders at pre-set levels to limit losses - and sent prices tumbling more than one per cent.
Spot gold was up 0.3 per cent at $1,281.20 an ounce by 0916 GMT, not far from a two-month low of $1,273.06 hit on Thursday. The metal is down nearly 2 per cent for the week, the biggest drop since the week ended July 18.
US gold futures gained 0.5 per cent to $1,281.90.
The dollar hovered below its 2014 peak against a basket of major currencies ahead of an eagerly awaited speech by U.S. Federal Reserve Chair Janet Yellen at the annual gathering of central bankers in Jackson Hole, Wyoming.
Any further strengthening of the U.S. currency is likely to add pressure to gold, as it would make the metal more expensive for holders of foreign currencies.
But a dovish speech from Yellen, who had in July stressed that there was still a significant slack in labour markets, would counter this week's Fed minutes that showed policymakers debating whether rates should be raised earlier or not.
Higher interest rates would dull the attractiveness of non-interest-bearing assets such as gold.
"Yellen's Jackson Hole is going to be a dominating story as it comes at a sensitive time for Fed communication given that the minutes had a slightly more hawkish tinge," Macquarie analyst Matt Turner said.
"However, Jackson Hole speeches are not the most obvious place to communicate a change in policy so we shouldn't expect it to be a major event."
