(Reuters) Gold rose on Friday as the dollar pulled back from a two-month high, but bullion was poised for a third straight weekly fall as traders assessed the progress of U.S. debt ceiling negotiations and the Federal Reserve's next policy move.
Spot gold was up 0.3% to $1,945.39 per ounce by 0311 GMT, after hitting its lowest since March 22 at $1,936.59. U.S. gold futures edged up 0.1% to $1,945.90.
However, bullion has declined 1.6% so far in the week.
There is an overwhelming market expectation that the debt crisis will be resolved, and a still overall tightening horizon from the Fed that is expected to put some downward pressure on gold, said Clifford Bennett, chief economist at ACY Securities.
"The Fed may indeed pause at the next meeting, as they should, given both the debt ceiling crisis, even with a resolution, and the ongoing, albeit in the background, banking crisis," Bennett said.
The dollar dipped 0.1% on the day, but held close to its highest since March 17. Benchmark Treasury yields were also near highs seen in March.
U.S. President Joe Biden and top congressional Republican Kevin McCarthy on Thursday appeared to be nearing a deal to cut spending and raise the government's $31.4 trillion debt ceiling, with little time to spare to head off the risk of default.
On the interest rate front, markets are now pricing in a 39% chance of a 25 basis point hike in June and seeing cuts no sooner than September, according to the CME FedWatch tool.
Gold could still reach $1,980 or close to the $2,000 level in June, supported by steady physical demand in key markets like India and China and overall economic uncertainty, said Ajay Kedia, director at Kedia Commodities in Mumbai.
Spot silver rose 0.3% to $22.83, platinum climbed 0.4% to $1,024.63, and palladium advanced 0.3% to $1,420.40.