Gold retreated below $1,360 an ounce on Friday after the resignation of Egyptian President Hosni Mubarak following weeks of protest took some heat out of risk aversion.
Despite the decline, bullion posted its second consecutive weekly gain as fears that Egypt's unrest would spread across the Arab world had put a floor on gold prices, traders said.
Mubarak, the second Arab leader to be overthrown by a popular uprising in a month, handed power to the army after 18 days of relentless rallies against poverty, corruption and repression caused support from the armed forces to evaporate.
"The geopolitical risk and the incentive to buy gold on the back of that are probably reduced," said Hayden Atkins, an analyst at Macquarie. "Tension will still be simmering, but it won't be as big a news story for people to trade off."
Spot gold fell 0.4 percent to $1,357.95 an ounce by 2:52 p.m. EST, having earlier risen to a three-week high of $1,368.16. U.S. gold futures for April delivery settled down $2.1 at $1,360.4.
Futures trading volume was 40 percent below its 30-day average, in line with lower turnover during the week. Some traders said dwindling volume could signal waning investor interest in gold.
Other market watchers, however, said gold remained well supported by underlying safe-haven demand after Mubarak's resignation and the Tunisian uprising that toppled President Zine al-Abidine Ben Ali in January, starting a chain reaction across the Arab world.
"The biggest question of course is if this (Mubarak's stepping down) will lead to problems elsewhere. I think that's what we need to focus on going forward, and that will keep gold steady," said Bill O'Neill, partner at commodities firm LOGIC Advisor.
Analysts said the metal had come under pressure from slackening appetite for bullion as interest in other assets such as stocks improved.
Gold was weakened further after data showed stronger-than-expected U.S. consumer sentiment, which rose to an eight-month high in early February.
"Gold is encountering a lot of resistance on the upside as the U.S. economy is improving, so there are less reasons to hold gold," said Miguel Perez-Santalla, vice president of Heraeus Precious Metals Management.
Bullion is having a tough time rising as the market has already factored in investment interest out of fears of economic uncertainty and inflation, Perez-Santalla said.
Gold fell 6 percent in January after a run of well-received U.S. data and easing worries about Europe's debt crisis shifted investor focus onto assets seen as higher-risk, but its slide has been arrested this month.
Investment demand for gold remained soft, with holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, easing nearly a ton on Thursday. They are down just over 55 tons so far this year.
In the same period of 2010, they fell around 27 tons.
"Consistent offloading by ETFs, who were pivotal in taking the metal beyond $1,400, and lackluster physical demand are the key bearish forces curbing sustained gains," said Pradeep Unni, senior analyst at Richcomm Global Services.
Premiums for gold bars were steady in Hong Kong and Singapore, with no signs of buying interest from China after the Lunar New Year celebration. There was hardly any physical buying in Asia related to unrest in Egypt, dealers said.
Silver slipped 0.8 percent to $29.96 an ounce.
The tightest physical supplies in four years have tipped the U.S. silver futures market into backwardation this week, making near-term prices more expensive than more distant months.
Holdings in the world's largest silver ETF, the iShares Silver Trust, rose around 18 tons to 10,388.45 tons on Thursday, their first increase since January 24.
Platinum dropped 1.2 percent to $1,802.74 an ounce, while palladium lost 1.1 percent to $811.47.
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