Gold edges off three-month high as dollar firms

By Jan Harvey

LONDON (Reuters) - Gold fell from three-month highs on Friday as the dollar firmed, but stayed on track for its biggest weekly gain since mid-January as a spate of soft economic data dented expectations for an imminent rise in U.S. interest rates.

The dollar recovered from a three-month low against the euro as a recent spike in German Bund yields stalled, taking some wind out of gold's sails after a three-day rally took prices to their highest since mid-February at $1,227.04 on Thursday.

Spot gold was down 0.6 percent at $1,214.10 an ounce at 1151 GMT, while U.S. gold futures for June delivery were down $11.10 an ounce at $1,214.10. Prices are up 2.2 percent this week.

Recent data has supported market expectations that the economy is not strong enough for the Fed to start raising record-low rates from June. [ID:nL1N0Y40VS]

U.S. data due on Friday, including April industrial production and the University of Michigan's preliminary May reading on consumer sentiment, should provide more clues.

"Gold coming off today may be a bit of profit-taking on the move of the past couple of days ahead of data releases later, on the expectation that they could possibly be better than expected," Citi analyst David Wilson said.

"The weaker U.S. macro data over the past couple of weeks has pushed back expectations for an earlier rate hike, and now I think the market is increasingly thinking that if it's going to be this year, it will be the back end of the year."

Gold is sensitive to rate expectations, as higher rates increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

Investors remain cautious over the outlook for gold, which has fallen for the past two years and has struggled to maintain gains this year. Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, fell 0.61 percent on Thursday to a four-month low of 723.91 tonnes.

Physical buying slowed in Asia as higher prices kept some consumers away. In China, premiums eased about 50 cents to $1 an ounce over the global benchmark on Friday, from premiums of $2-$3 earlier in the week.

Among other precious metals, silver was down 0.4 percent at $17.36 an ounce, though still on course for its biggest weekly gain in nearly two months. Platinum was down 0.9 percent at $1,148.50 an ounce, while palladium rose 0.1 percent to $782 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Susan Thomas and David Goodman)