By Jan Harvey
LONDON (Reuters) - Gold fell on Friday as a steadier tone to stocks and a firmer dollar helped erode some of the previous day's 2 percent gains, but held above $1,220 an ounce as investors bet on a continuation of rock-bottom interest rates.
European shares held steady at the end of a strong week, their best since January 2015, while the dollar rose 0.1 percent against the euro. That halted a four-week rally in gold prices, which are set to fall 1.4 percent this week.
Spot gold was down 0.9 percent at $1,221.42 an ounce at 1032 GMT, while U.S. gold futures for April delivery were down 0.3 percent at $1,222.30.
The metal hit a one-year high at $1,260.60 an ounce last week as turmoil in the wider financial markets fuelled interest in gold as a store of value, and dented expectations that the Federal Reserve would further hike interest rates this year.
It remains 14 percent higher than at the start of the year.
More From This Section
"Gold moved up pretty sharply, and a period of reflection and sideways trading would seem appropriate," Simon Weeks, head of precious metals at the Bank of Nova Scotia, said.
"As a safe haven, it is definitely coming into play again. We've had negative interest rate announcements around the world... so perhaps people felt they'd got a little ahead of themselves in terms of their optimism about the economic recovery."
As a non-yielding asset, gold benefits from a lower rate environment.
The metal has been supported by inflows into gold-backed exchange-traded funds (ETFs), holdings of which have already risen this year by more than they fell in the whole of 2015.
Holdings of the world's top gold ETF, SPDR Gold Shares, rose another 0.38 percent to 713.63 tonnes on Thursday.
"Gold remains in demand in the current market environment, characterised as it continues to be by high levels of uncertainty," Commerzbank said in a note.
In the physical markets, Asian gold demand slowed this week as consumers opted to wait out the metal's biggest price rally in years, with discounts in key consumer India hitting a record high as some investors cashed out holdings.
Among other precious metals, silver was down 0.7 percent at $15.30 an ounce, while platinum was down 0.4 percent at $936.49 an ounce and palladium was up 0.3 percent at $503 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore, editing by Susanna Twidale)