(Reuters) - Gold prices firmed on Friday, but were headed for a second straight yearly loss as aggressive rate hikes by the U.S. Federal Reserve dented the non-yielding bullion's appeal.
Spot gold was up 0.2% to $1,818.64 per ounce as of 0309 GMT. U.S. gold futures fell 0.1% to $1,824.60.
"For most of the year, gold was under pressure from a hawkish Fed. But by the end of the year, it saw some recovery and got a lifeline on expectations that the Fed might slow down," said Ilya Spivak, head of global macro at Tastytlive.
Bullion was headed for an annual decline of 0.6% as the dollar emerged as the preferred safe-haven asset amid the Fed's hefty interest rate hikes. The dollar index eyed its best year since 2015, making gold expensive for foreign currency holders.
However, gold prices have risen nearly $200 from a more than two-year low hit in September and were on course for their best quarter since June 2020, on hopes that the U.S. central bank might slow its pace of rate hikes.
The Fed raised interest rates by 50 basis points (bps) in December after four consecutive increases of 75 bps each.
Higher rates increase the opportunity cost of holding gold as it pays no interest.
"In 2023, gold prices will see a lot of volatility but won't move much farther as they will be stuck between a stronger dollar and lowering Treasury yields," Spivak added.
"If recession hits industrial demand in 2023, then platinum and palladium will likely suffer."
Spot silver rose 0.4% to $23.97, platinum was flat at $1,054.86 and palladium was little changed at $1,814.75.
Silver and platinum were both headed for a yearly rise, while palladium was headed for an annual decline of 4%.