Gold fell in New York on speculation that the dollar would strengthen on signs that the US economy will resume growing later this year. Silver gained.
Confidence among US consumers climbed more than forecast in April. Conditions are falling into place for the US economy to begin growing again in the second half of 2009, according to economists at JPMorgan and Barclays Capital.
The US dollar rose as much as 0.2% against a six-currency basket before giving up its gains.
Gold is falling because "the dollar has the potential to go higher as we are beginning to see some signs that the worst of the recession may be over,'' John Gross, the president of J-E Gross, a metal-industry consulting company, said.
"When you look at the European side of the equation, it's clear that it will take them longer.''
Gold futures for June delivery fell $US5.70, or 0.7%, to $US885.30 an ounce on the Comex division of the New York Mercantile Exchange. A close at that price would mean a 3.2% drop for the week, the steepest since the last week in March.
Silver futures for July delivery gained 10 cents, or 0.8%, to $12.425 an ounce. The most-active contract slumped 5.1% last month, while gold slid 3.7%.
The US economy, the world's largest, shrank at a 6.1% annual rate in the first quarter, making this the sharpest recession since 1958. Inventories dropped at a record pace from January through March, which some economists said may set the stage for improvement starting this quarter.
Still bullish
"I am still bullish on gold,'' Philip Gotthelf, the president of Equidex Brokerage Group in New Jersey, said.
"If the financial woes continue through June, the June contract will probably reach $1,000 an ounce. If the problems continue through July, we will see the October gold contract at $1200 an ounce if not $1500.''
The Federal Reserve is postponing the release of stress tests on the biggest US banks until later next week, while executives debate preliminary findings with examiners, according to government and industry officials. The results were to be reported on May 4.
"The gold market is a mixed picture,'' Mr Gross said. "It is divided between those who anticipate inflation and those who are concerned about deflation.''
Some investors buy gold and other precious metals to hedge against rising consumer prices.
Last month, the International Monetary Fund forecast a 1.3% decline in the world economy this year and said that there was "significantly less risk of deflation'' in the 16- nation euro region than in the US.
