Gold eyes biggest weekly drop in five on U.S. data, Fed hike view

By Clara Denina

LONDON (Reuters) - Gold traded flat on Friday, on track to post its biggest weekly drop in five as strong U.S. economic data supported the case for a near-term increase in interest rates.

The upward revision in U.S. economic growth in the second quarter to 3.7 percent from the initial estimate of 2.3 percent spurred market expectations that the Federal Reserve could still raise rates this year despite a global equities market turmoil and concerns over a slowing Chinese economy.

A rate hike would dim the appeal of non-interest bearing assets as gold.

Spot gold was unchanged at $1,125.20 an ounce by 1148 GMT, down 3percent for the week so far.

U.S. gold for December delivery edged up 0.2 percent to $1,125.20 an ounce.

The metal touched a one-week low of $1,117.35 on Wednesday and has lost more than 3 percent since hitting a seven-week top on Aug. 21, failing to benefit from the dollar falling to a seven-month trough this week.

"The big question for next week is whether the anxiety that crept into the market on August 10 when China devalued its currency is going to continue," Saxo Bank senior manager Ole Hansen said.

"We are only a few weeks away from the Fed policy meeting and that is going to attract a lot of attention as well."

The dollar was steady against a basket of leading currencies, while European equities eased back, following an 8 percent correction earlier this week.

The robust second-quarter GDP, along with recent strong housing and manufacturing data, will likely prod the Fed to raise interest rates next month, said INTL FCStone analyst Edward Meir.

"For all the talk of market turmoil, it is important to note that the Fed does not typically look at overseas developments to make its rate decision and we don't think this time will be any different," Meir said in a note.

Friday's focus was on the August University of Michigan Confidence index later in the day. The market will also be waiting for more comments on policy normalisation from Fed officials attending the Aug. 27-29 Jackson Hole Economic Symposium.

Weak gold prices have failed to spur physical demand in Asia, with premiums in India slipping, and those in China still hooked on volatile equities.

Spot silver fell 0.6 percent to $14.40 an ounce, having fallen to a six-year trough of $13.93 on Wednesday. Silver has dropped more than 5 percent this week, its steepest such decline since February.

Palladium rose 1.4 percent to $567.50 an ounce, extending Thursday's 5 percent rebound from five-year lows, while platinum was down 0.2 percent at $999.

(Additional reporting by Manolo Serapio Jr in Manila; Editing by Susan Thomas)