Gold headed for a second weekly decline, trading near the lowest in more than five years, after the Federal Reserve's first rate rise in almost a decade boosted the dollar and hurt demand.

Bullion for immediate delivery traded 0.4 percent higher at $1,054.99 an ounce at 10:27 a.m. in Singapore, set for a weekly fall of 1.8 percent, according to Bloomberg generic pricing. The metal fell as much as 2.3 percent on Thursday to $1,047.79, near the Dec. 3 low of $1,046.44. It has dropped for eight of the past nine weeks, and is 11 percent lower in 2015.

Bullion's path toward a third annual loss has been spurred by the onset of higher U.S. borrowing costs, and investors are now looking at the probable pace of tightening in 2016. Holdings in exchange-traded products shrank yet again on Thursday, dropping by the most in two weeks, and assets are at the lowest level in more than six years.

Prices came under pressure after the Fed rate hike; the strong dollar rally has muted demand, Australia & New Zealand Banking Group Ltd. said in a report. A gauge of the U.S. currency held a six-day climb on Friday after rising on Thursday to the highest in data going back to early 2005.

Gradual Approach

Still, traders, and analysts are bullish on gold as the U.S. central bank has stressed a gradual approach toward the further raising of rates, according to a weekly Bloomberg survey. Fed policy makers flagged a quartet of increases next year when they raised the target rate at their meeting this week.

That rate hike is going to make it less attractive to hold gold, which is not interest-bearing, and also the U.S. dollar strengthened further," said Bernard Aw, a strategist at IG Asia Pte in Singapore. The focus has clearly shifted to how fast the Fed is going to raise.

The advance on Friday was a bounce after prices dipped below $1,050, which prompted quite significant buying, according to Aw. A close below that level would probably spell more downside for the rest of the year, he said.   

Spot silver climbed 0.5 percent after a 3.3 percent drop on Thursday. Palladium lost 0.2 percent, and platinum fell 0.1 percent.(Bloomberg)