LONDON — Gold rose nearly 2% on Friday, after dropping for four of the past five sessions, as a weaker dollar and falling equity markets underpinned demand for assets perceived as safer.

European shares dropped, following losses in Asian markets, to three-and-a-half-year lows on renewed oil price weakness and disappointing Chinese data.

"You have pockets of risk aversion generating defensive bids in gold, but then physical buying drops away and if there’s an uptick in equities, gold falls back," ICBC Standard Bank analyst Tom Kendall said.

Spot gold rose to a session high of $1,097.20 an ounce and was up 1.2% at $1,090.76 by 3.19pm GMT, while US gold futures gained 1.9% to $1,094.10.

"We have had a good start to the year, with prices trying to consolidate into a higher range between $1,080 and $1,100," ActivTrades chief analyst Carlo Alberto de Casa said.

"A close above $1,080 would certainly help gold’s case, although long-term fundamentals, including the US monetary policy and the oil price weakness represent a risk."

Bullion hit a two-month high of $1,112 last week as volatility in Chinese stocks raised concerns about the state of the global economy, leaving investors looking for a refuge in gold and other safe havens.

The metal was assisted by a weaker dollar, which fell 0.5% against a basket of leading currencies, extending losses after weaker than expected US data and making gold cheaper for foreign currency holders.

US retail sales and industrial production fell in December, the latest indication that economic growth braked sharply in the fourth quarter.

Weak producer prices suggest that an anticipated rise in inflation will probably fall short of the Fed’s 2% target. The inflation outlook will likely determine the timing of further interest rate increases.

In addition, the drop in oil prices and a strong dollar have also raised the risk of US inflation expectations heading lower, New York Fed President William Dudley said on Friday.

"One of the things that would help gold would be if the language coming out of the Fed made people believe that ...

there may be no more (increases) this year," ICBC Standard Bank’s Kendall said.

The world’s largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, reported a 2.4 tonne rise in its holdings on Wednesday, bringing its total inflow for the year to 11.7 tonnes.

Silver was up 1% at $13.95 an ounce, palladium rose 0.4% to $490.47 an ounce, heading for a second week of declines after a 12-percent slide last week and platinum rose 0.4% to $833.87.