By Katherine Dunn

LONDON--Gold prices traded higher on Friday morning in London as the dollar weakened, chipping back Thursday's decline on the back of the Federal Reserve's announcement to raise U.S. interest rates.

The spot gold price was up 0.64% at $1,135.51 a troy ounce in midmorning trade, after declining 1.3% on Thursday to a fresh 10-month low.

On Friday, the dollar was falling back from multiyear highs on Thursday, following the Fed's decision to raise interest rates.

The WSJ Dollar Index, which measures the dollar against a basket of other currencies, was down 0.17%. A weaker dollar is generally bullish for dollar-denominated commodities,because it makes the metal more affordable for investors who hold other currencies.

An interest-rate increase by the Federal Reserve on the other hand, which had been anticipated for months, is generally bearish for the precious metal. Gold doesn't pay interest, unlike many other investments, and so demand typically falters when rates rise and other instruments become more attractive.

However, analysts had warned ahead of the hike that the impact on gold was largely priced into the market, making Thursday's losses relatively muted. Traders will likely now look ahead to the timing and pace of rate increases in 2017.

Expectations of further rate hikes in the coming year could increase pressure on the metal, said Joni Teves, a strategist at UBS.

"In order for gold to recover, there needs to be a catalyst for markets to pare back current optimism and retrace the recent moves in [interest] rates and the U.S. dollar," Ms. Teves said.

Silver was also making a recovery on Friday, after gold's decline dragged the metal sharply lower on Thursday to its own 10-month low. The metal was up 0.75% at $16.14 a troy ounce in midmorning European trade.

Other precious metals were mixed. Platinum was up 0.27% at $901.70 a troy ounce, while palladium was down 1.06% at $693.60 a troy ounce.

Write to Katherine Dunn at Katherine.Dunn@wsj.com

(END) Dow Jones Newswires

December 16, 2016 07:16 ET (12:16 GMT)

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