Gold edges higher, but still set for worst week in 6 months

By Jan Harvey

LONDON (Reuters) - Gold edged up on Friday after two days of hefty losses, tracking a recovery in oil but still heading for its biggest weekly loss in six months as euro zone political risk receded and expectations for a U.S. interest rate hike in June grew.

Spot gold was up 0.4 percent at $1,231.99 an ounce at 1155 GMT, but was still set to end the week down 2.8 percent, its biggest weekly drop since November. U.S. gold futures for June delivery were up $6.20 at $1,234.80.

The metal hit a six-week low of $1,225.25 on Thursday after the U.S. Federal Reserve played down any threats to this year's planned rate increases, supporting forecasts of another move in June.

Concerns over a victory by far-right candidate Marine Le Pen in the French presidential election, which drove gold lower last month, have faded considerably. Sunday's vote is expected to elect centrist Emmanuel Macron, whom investors favour.

"Following six weeks of fund buying, gold was left exposed as geo-risks faded, but the fact that ETPs have seen limited selling appetite could be an indication that this was mostly speculative sellers reducing longs," said Saxo Bank's head of commodities research, Ole Hansen.

Holdings of gold exchange-traded products tracked by Reuters have held fairly steady during the recent sell-off, currently standing less than 1 percent below April's near five-month high.

"Risk of further weakness exists, but at this stage the direction is likely to be determined by other commodities, especially oil," Hansen said. "Some nervousness also persists ahead of today's jobs report."

The dollar index held steady ahead of the closely watched payrolls report due at 1230 GMT. The data will be watched for clues on the strength of the labour market to help to gauge the Federal Reserve's rate trajectory to the end of the year.

"The U.S. labour market is expected to have recorded a rebound to 190,000 from a relatively weak March number of 98,000," SP Angel said in a note. A strong report would shore up expectations of action from the Fed.

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

Silver was up 0.3 percent at $16.32 after hitting a four-month low of $16.17 on Thursday. The metal has fallen 10 percent in the second quarter.

Platinum was up 1.3 percent at $910.60 an ounce, while palladium was 0.4 percent higher at $807.56. The spread between platinum and palladium was close to its narrowest in 15 years, having dipped below $100 an ounce this week.

(Additional reporting by Swati Verma in Bengaluru; Editing by David Goodman and Edmund Blair)