Gold retreats on Egypt report

Gold bars are pictured at the Ginza Tanaka store during a photo opportunity in Tokyo September 17, 2010.

NEW YORK (Reuters) - Gold dropped on Friday as the dollar rose and safe-haven buying ebbed after an apparently unfounded television report sparked intense speculation that Egypt's President Hosni Mubarak could be stepping down soon, which would end unrest.

For the week, gold notched its first weekly gain in 2011 after U.S. employment rose far less than expected in January, and after Federal Reserve Chairman Ben Bernanke indicated monetary policy would stay accommodative in the near term.

"I don't think that gold has lost its value in the marketplace in terms of it being treated as a surrogate currency, but rather there is no catalyst at the moment to drive prices higher," said Mark Luschini, chief investment strategist of Janney Montgomery Scott, a brokerage managing about $50 billion client assets.

Luschini also cited sharply higher U.S. Treasury yields which weighed down on gold's investment appeal.

Worries that growing inflation pressure would cause the Federal Reserve to raise interest rates earlier than previously thought caused the biggest weekly rise in the yield on the U.S. two-year Treasury note in more than a year. <US/>

Spot gold dropped 0.3 percent to $1,348.59 an ounce by 2:30 p.m. EST (1930 GMT). U.S. gold futures for April delivery settled down $4 to $1,349.

U.S. gold futures' specs net longs or bullish position decreased 6 percent in the week up to February 1, while open interest fell by 9 percent as funds continued to unwounded long futures positions, U.S. CFTC's latest trade data showed.

Silver gained 0.1 percent to $28.94 an ounce. Holdings of the largest silver ETF, the iShares Silver Trust, fell more than 30 tons to their lowest since November on Thursday.

Tom Pawlicki, precious metals and energy analyst at MF Global, noted that silver's open interest and prices have rebounded much more than gold's.

Gold holdings of exchange-traded funds inched higher, with those of the largest, New York's SPDR Gold Trust, edging up just over two tons on Thursday. <GOL/SPDR>

Bullion's demand dropped on after the speculation on Mubarak's resignation, but fears that unrest in Egypt would spread across the Middle East should still provide a floor to prices, analysts said.

Traders said the rumor of Mubarak's imminent resignation seemed to stem from a brief report on U.S. television station CNBC, but more than two hours later there was no news on Egyptian TV about any announcements or possible transition of power. There were no reports from other media outlets suggesting any imminent news from Egypt.

Data showed U.S. jobs barely grew in January, but the unemployment rate fell to its lowest since April 2009. Bullion was pressured as the dollar rose against the euro on the U.S. jobless number. <FRX/>

FIRST WEEKLY RISE IN 2011

Gold posted its first weekly gain in five weeks, after rising on Thursday after Bernanke indicated that U.S. monetary policy would stay accommodative.

In January, gold posted its first monthly decline in six months after signs the global economy started the year on a solid footing with easing worries about Europe's debt crisis.

"In light of the euro zone issue seems being dealt with, that has provided some disinterest in market participants for holding gold at these levels," Janney's Luschini said.

Platinum group metals touched multi-year highs, with platinum reaching its loftiest level since July 2008 at $1,858.50 an ounce and palladium a 10-year peak at $831.

Platinum was later up 0.3 percent at $1,841.24 and palladium down 0.3 percent at $814.47.

Prices at 3:41 p.m. EST (2040 GMT)

(Additional reporting by Jan Harvey in London; Editing by David Gregorio)