Gold edges up as dollar retreats from day's highs

By Renita D. Young and Eric Onstad

NEW YORK/LONDON (Reuters) - Gold prices rose slightly on Friday as the U.S. dollar backed off its highs, initially rising after U.S. jobs data was weaker than expected. However the data was still strong enough to support the case for more interest rate increases.

Spot gold rose 0.2 percent to $1,314.23 per ounce by 3:09 p.m. EDT (1909 GMT), heading for a third consecutive weekly decline, while U.S. gold futures for June delivery settled up $2, or 0.2 percent, at $1,314.70.

The dollar index backed off its highs, but it still remained in positive territory against a currency basket. Investors earlier bet that the Federal Reserve will continue raising rates while other central banks will act more slowly. [USD/]

A stronger dollar makes commodities priced in the greenback more expensive for buyers using other currencies.

"The dollar's off the high pretty substantially, and I think that's lending a helping hand to gold," said John Caruso, senior market strategist at RJO Futures in Chicago.

"Jobs number was very underwhelming today, and I think gold is trying to find some footing to potentially find some support to the upside."

The U.S. employment data showed U.S. job growth increased less than expected in April and the unemployment rate dropped to near a 17-1/2 year low of 3.9 percent.

"This is a bit disappointing on the earnings front after the employment cost index we received last week. Still this is not enough for the Fed to pause. They will still hike in the June meeting," said Collin Martin, fixed income strategist at the Schwab Center For Financial Research in New York.

Rising interest rates make gold less attractive to investors because it does not pay interest.

Next week, gold is likely to be supported as investors worry about a possible U.S. withdrawal from the Iran nuclear accord, said Commerzbank analyst Daniel Briesemann.

If Washington decides to stick with the pact by a May 12 deadline, gold could be pressured, he added.

"Even if gold dips below $1,300, the past has shown that there is buying interest below that level, so we don't expect gold to drop significantly for the moment," Briesemann said.

Meanwhile, spot silver rose 0.6 percent to $16.50 an ounce, ending the week barely changed.

Platinum gained 0.9 percent at $908 an ounce and was on track for a third weekly fall to end the week about 0.3 percent lower.

Palladium rose 0.2 percent at $963.72 per ounce, heading for a nearly 1 percent weekly drop.

(Additional reporting by Eileen Soreng in Bengaluru; Editing by Phil Berlowitz)