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Gold eased on Friday as a stronger dollar weighed, but held close to its previous session's highs en route to a weekly gain on bets that the Federal Reserve could soon pause interest rate hikes.

Spot gold fell 0.2% to $1,963.19 per ounce by 8:51 a.m. ET (1257 GMT). But it is headed for a 0.8% weekly climb, helped by about 1.5% jump on Thursday after a surge in U.S. weekly jobless claims.

U.S. gold futures rose 0.1% to $1,979.60 .

The dollar index gained but hovered near Thursday's lows. A stronger dollar makes gold expensive for overseas buyers. [USD/]

The market is still looking for a hedge against an economic slowdown, providing some underlying support to gold, said Ole Hansen, head of commodity strategy at Saxo Bank.

"For now, there are no clear signals... but we've seen a decent bounce this week and found support in the low $1,930s," Hansen added.

Higher rates raise the opportunity cost of holding non-yielding bullion.

Focus now shifts to the U.S. consumer inflation report for May, due on June 13, a day before the Fed announces its policy decision.

Inflation was seen edging lower, up 0.2% in May after having risen 0.4% in April month-on-month, according to a Reuters poll.

Markets are pricing in a 74% chance of the Fed standing pat next week, after having raised rates at every meeting since March 2022, while odds of a 25 bps hike in July are 52%, the CME Fedwatch tool showed.

"We are still confident that interest rates have already peaked and that the market will correct its overly hawkish positioning in due course," analysts at Commerzbank wrote in a note.

"Against this backdrop, we envisage higher gold prices in the medium term."

Palladium, used in emissions-controlling devices in cars, touched its lowest since June 2019, hovering at $1,327.

Silver was little changed at $24.24 per ounce and eyes its best week since early April. Platinum dipped 1% to $999.99, heading for its third weekly decline.