Gold edges higher but eyes 7th weekly loss

By Jan Harvey

LONDON (Reuters) - Gold edged higher on Friday in thin pre-Christmas trade as the dollar retreated from this week's 14-year high, tempting some buyers to take advantage of a near 10-month low in prices after six straight weeks of decline.

Gold has fallen more than $200 an ounce from its peak hit in the immediate aftermath of Donald Trump's U.S. presidential election victory on Nov. 8, as his win sparked a dollar rally and drove U.S. Treasury yields higher.

It is down 14 percent this quarter, paring its gain for the year to 6.7 percent. Gold posted its biggest quarterly increase in 30 years between January and March.

Spot gold was up 0.2 percent at $1,131.15 an ounce at 1255 GMT, off last week's low of $1,122.35, while U.S. gold futures for February delivery were up $2.40 an ounce at $1,133.10.

"(Many) traders have closed their books. For them, the year has finished," LBBW analyst Thorsten Proettel said. "With no real political or economic events to shock markets, and with Asian markets seeing dull demand, I would say not much will happen until January. We see gold holding around $1,130."

Gold remains largely driven by currency effects, he added. "The most important drivers for gold right now are the exchange rate from the dollar to the euro, and real U.S. interest rates."

The dollar is just over half a percent off highs hit after this month's Federal Reserve policy meeting, at which the bank surprised markets by indicating interest rates could rise more quickly than expected next year.

Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

"There is a risk that the prices of gold and silver might fall further in the short term as the Fed hikes rates more aggressively in response to some of Trump's more inflationary policies," Capital Economics said in a weekly note.

Buying in India remained subdued this week despite a sharp fall in prices as a severe cash crunch and holidays kept purchasers away from the market, while premiums in China fell from near three-year highs touched in the prior week.

Investors also showed little appetite for gold. Holdings of the world's largest gold-backed exchange-traded fund have fallen more than 12 percent since November.

Silver was little changed at $15.78, while platinum was 0.4 percent higher at $905.20 an ounce and palladium was up 0.2 percent at $655.95.

(Additional reporting By Nallur Sethuraman in Bengaluru; Editing by Dale Hudson and Adrian Croft)