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Gold held steady on Friday amid lower trading activity because of Asian holidays but was set for its first weekly loss in three as investors were choosing more riskier assets such as equities rather than holding value in the yellow metal.

Equity markets were higher after weak U.S. data reduced the already low chance of an interest rate increase when the Federal Reserve meets next week. However, a new Reuters poll of 100 economists showed a median 70 percent chance of an increase in December.

Gold is highly sensitive to rising interest rates, which would lift the opportunity cost of holding non-yielding assets.

"We are expecting prices to be volatile especially with the Fed meeting next week. Investors will be analysing every single bit of data that is coming out," said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central.

The chances of an interest rate hike dropped after reports on Thursday showed U.S. retail sales fell more than expected in August and manufacturing output declined as well as rising jobless claims in the latest week.

Spot gold was steady at $1,313.90 an ounce by 0529 GMT. Bullion is on track to end the week down about 1 percent.

"Gold is just following the dollar market. That's the reason for the volatility," a Tokyo-based precious metals trader said. "The market is mostly going to be short ahead of the Bank of Japan's (BOJ) meeting next week. If the BOJ is going for more easing then it might put pressure on gold in line with a strong U.S. dollar."

Precious metals prices exert little to no influence on the U.S. Federal Reserve’s (Fed) monetary policy, but changes in market expectations for Fed rates have a strong impact on two of the four precious metals, which include platinum and palladium. If one compares the day-to-day correlation of the changes in the Fed Fund Futures rate (100 minus the Fed Fund Futures price) with the changes in precious metals prices, one finds a strong and persistently negative correlation for gold and silver. Since the Fed hiked rates in December 2015, those correlations have grown stronger.

Gold is more sensitive to changes in interest rate policy than silver. This is probably because gold is the truly precious of the two: It is widely used in investment and jewelry, which can also be seen as an investment. While silver is also used in investment and jewelry, it is more widely used in industrial and other applications.