Gold edges up on dollar but heads for third weekly drop

By Clara Denina

LONDON (Reuters) - Gold inched up on Friday as the dollar softened, but was heading for a third week of losses on expectations of higher U.S. interest rates and hopes of a deal between Greece and its creditors.

Spot gold rose 0.2 percent to $1,224.50 an ounce by 1233 GMT. The metal hit a five-week low of $1,216.45 in the previous session, before rebounding on a softer dollar.

U.S. gold for April delivery edged up $4.00 at $1,224.70 an ounce.

"We are in a holding pattern between $1,150 and $1,300 just because there isn't enough clarity around when the Fed is going to be hiking interest rates and what is going to be happening with Greece," ING Bank senior strategist Hamza Khan said.

"So until we see what is going to happen in the long term, gold is likely to remain in this range."

A flat dollar after bleak U.S. economic data on retail sales and jobless claims was supporting gold by making the dollar-denominated asset cheaper for holders of other currencies.

However, Friday's strength was not enough to offset bullion's weekly losses, which were set to come in at around 0.5 percent.

The outlook for the dollar remained upbeat despite the current pause in its long-term rally, as many investors continued to price in an interest rate hike by the Federal Reserve some time this year.

Any hike by the Fed, which has kept rates near zero since 2008 to stimulate the U.S. economy, could hurt demand for bullion, a non-interest-bearing asset.

Stronger European shares after robust growth figures from Germany were also keeping gold's upside in check. Equity markets had been hit by confusion over Greece's debt negotiations and its future in the euro zone, which had in turn lifted retail demand for the metal in Europe.

Greece agreed on Thursday to talk to its creditors about the way out of its international bailout.

Holding in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.23 percent to 771.51 tonnes on Thursday.

In the physical markets, Chinese buying remained stable ahead of the Lunar New Year holiday next week. Premiums on the Shanghai Gold Exchange traded unchanged on the day at $3-$4 an ounce on Friday.

Silver rose 0.5 percent to $16.88 an ounce. Platinum gained 0.5 percent at $1,199.50 an ounce, while palladium was up 0.1 percent at $772.97 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Andrew Heavens and William Hardy)