Picture used for illustrative purpose. File

Gold prices fell on Friday as the U.S. dollar rebounded, but the precious metal was on track for a weekly gain underpinned by worries over a global economic recovery from the coronavirus-led slump.

Spot gold was down 0.8% at $1,938.53 per ounce by 0528 GMT, after hitting its best level since Sept. 2 at $1,965.94 on Thursday. Gold has gained 0.3% this week. US gold futures fell 0.9% to $1,945.50.

"A rebound in the U.S. dollar index sent gold prices lower following the European Central Bank's neutral tone last night," said Margaret Yang, a strategist with DailyFx, which covers currency, commodity and index trading.

"The mid- to-long-term outlook remains bullish for gold, despite recent consolidation. An ultra-loose monetary policy and low yield environment is cushioning the downside." 

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The dollar index bounced back following a steep drop against the euro in the previous session and was on track for its best week since mid-May.

A stronger greenback makes gold more expensive for holders of other currencies. Casting a shadow over hopes for a quick economic rebound, US weekly jobless claims hovered at high levels last week, suggesting a slowing labour market recovery.

Gold prices have climbed 28% this year as governments and major central banks pumped massive stimulus into the economy and kept interest rates low to alleviate the economic toll of the coronavirus.

The US Senate blocked a Republican bill that would have provided around $300 billion in new coronavirus aid, as Democrats push for more funding. Investors' focus will now shift to British GDP data and U.S. inflation data due later in the day for further clarity on global economic recovery.

Elsewhere, silver dropped 1.3% to $26.58 per ounce and palladium lost 0.7% to $2,277.97. Platinum eased 0.4% to $922.29, but was heading for its best week since the week ending Aug. 7, up 3%. 

Reuters