Gold edges up ahead of G7, but dollar recovery caps gains

By Jan Harvey

LONDON (Reuters) - Gold firmed on Friday as a rise in risk aversion ahead of G7 talks this weekend lent support, but the metal remained hemmed within its narrowest weekly range in more than a decade as a recovery in the dollar kept a lid on gains.

Expectations that the U.S. Federal Reserve will announce another rate increase next week are also weighing on gold. Higher rates lift the opportunity cost of investing in non-yielding assets such as bullion.

Spot gold was up 0.1 percent at $1,297.95 an ounce at 1148 GMT, while U.S. gold futures for August delivery were down 70 cents at $1,302.30 an ounce.

Gold has moved little since last Friday's close, with the spread between its highs and lows the narrowest of any week since August 2007 at just $13.70 an ounce.

"There are offsetting factors - now you have some upside to the dollar, but at the same time you have a bit of noise coming up on the trade side with the G7 upcoming," ABN Amro analyst Georgette Boele said.

Next week's Fed meeting, and a meeting of the European Central Bank, are also in focus, she added. "It'll be important what the direction from the Fed is," she said. "We are still expecting two more hikes after next week."

World stocks fell on Friday as expectations of trade tensions dominating this weekend's summit of G7 countries weighed on risk sentiment. The dollar edged off a three-week low to rise a quarter-percent against the euro.

Leaders of the Group of Seven rich nations headed for a summit in Canada more divided than at any time in the group's 42-year history, as U.S. President Donald Trump's "America First" policies risk causing a global trade war and deep diplomatic schisms.

Trump is set to meet North Korean leader Kim Jong Un on June 12 in Singapore, the same day as the Federal Open Market Committee starts its two-day meeting on interest rates.

"We also do not expect gold to make any lasting gains ahead of next week's Fed meeting," Commerzbank said in a note. "Price-supportive factors are in short supply at present."

Demand was soft this week in Asia, home of the world's biggest physical gold markets, with Indian dealers offering customers deeper discounts during a weak period for sales.

Silver was up 0.4 percent at $16.74 an ounce, after hitting its highest in more than six weeks on Thursday. It was on track for a 2.1 percent rise for the week, its biggest in seven weeks, in line with gains in industrial metal copper.

Palladium was down 0.1 percent at $1,011.41 an ounce, while platinum was 0.2 percent higher at $898.

(Additional reporting by Karen Rodrigues in Bengaluru; Editing by Dale Hudson and Mark Potter)