Gold down on dollar, still set for biggest monthly gain in a year

By Clara Denina

LONDON (Reuters) - Gold edged lower on Friday as the dollar strengthened, but prices were still on track for their strongest monthly climb in a year after global economic headwinds hit riskier assets.

The metal has risen nearly 5 percent in January, underpinned by concerns over the world's growth outlook, especially China, which has raised questions about the pace of interest rate rises in the United States.

"Maybe things won't be this bad next month in the wider markets, so it is possible that if ETFs' flows are subsiding, prices will be lower too," Macquarie analyst Matthew Turner said.

"But one positive lesson we can learn from this month is that gold does still have a safe-haven role and that could stand it in good stead through a testing year to come."

Spot gold was down 0.1 percent at $1,113.26 an ounce by 1239 GMT, while U.S. gold for February delivery was down 0.2 percent at $1,113.90 an ounce.

The metal reached a 12-week high of $1,127.80 on Wednesday, after the Federal Reserve said it was closely watching the global economy and financial markets. This supported the view that U.S. policymakers may not be able to raise interest rates again as soon as March.

A March rate hike was looking "extremely unlikely," said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

"Now that the Fed has said that they are looking at international conditions and their impact on the U.S. economy, it's quite clear they'd be waiting ... and there are not just enough macro data between now and the March meeting for them to shift from their current position," said McCarthy.

Gold slid 10 percent last year on fears that higher U.S. interest rates would lift the opportunity cost of holding the metal.

The dollar rose 0.7 percent against a basket of leading currencies on Friday, mainly due to a weak Japanese yen after the Bank of Japan stunned markets by joining a handful of major central banks in adopting negative interest rates.

Investors were awaiting U.S. fourth-quarter gross domestic product data at 1330 GMT. Economists polled by Reuters suggest U.S. GDP growth of 0.8 percent in October-December, slowing from a 2 percent expansion in the third quarter.

Data on Thursday showed new orders for U.S. durable goods posted their biggest drop in 16 months in December, suggesting that growth in the world's top economy braked sharply at the end of 2015.

The world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, reported an inflow in January.

Spot silver was down 0.1 percent at $14.21 an ounce.

Spot platinum fell 0.5 percent to $861.40 an ounce while palladium gained 0.2 percent to $491.75.

(Additional reporting by Manolo Serapio Jr. in Manila; Editing by David Evans and Susan Fenton)