Gold falls from 3-1/2 month high, but set for weekly gain

By Jan Harvey

LONDON (Reuters) - Gold fell on Friday as a recovering dollar pulled prices from 3-1/2 month highs, but doubts over whether the Federal Reserve will press ahead with a U.S. rate rise this year kept the metal on track for a second weekly rise.

Prices continued a retreat that began on Thursday after upbeat U.S. inflation data calmed some concerns about the strength of the U.S. economy and boosted the dollar.

Spot gold was down 0.5 percent at $1,176.83 an ounce at 0930 GMT, while U.S. gold futures for December delivery were down $10.60 an ounce at $1,176.90. Spot gold is on track to rise 1.7 percent this week after peaking at $1,190 an ounce, its strongest since late June.

Gold is currently holding near its 200-day moving average, a level it broke this week for the first time since May.

"We had slightly better U.S. data which saw the dollar rally, so that seems to have scared off some of the gold buyers for the moment," Societe Generale analyst Robin Bhar said.

"But if it can consolidate around here and build a base, that's a good platform," he said. "Some of the tailwinds are back in gold, in the sense of softer U.S. data, (and) the fact that a Fed rate hike is most unlikely this year."

Gold prices have risen more than 5 percent since a weak jobs report on Oct. 2 pushed out expectations for a Fed rate rise. The metal benefits from ultra-low rates, which cut the opportunity cost of holding non-yielding assets.

Bullion was also losing some support from the physical markets, where consumer buying interest dropped due to the recent price rally.

Prices on the Shanghai Gold Exchange, an indication of demand in top consumer China, were at a discount on Friday against a premium of $2-$3 earlier in the week.

"We finished off the week devoid of action in Asia today as gold limped lower from the Chinese open, losing touch with the $1,180 handle in late afternoon trade as Shanghai eased to a $2 discount against London," MKS said in a note on Friday.

Investor sentiment towards gold has improved. Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold shares, rose another 5.1 tonnes on Thursday to 700 tonnes, their highest since mid-July.

That brought the fund's inflow for the week so far to 12.8 tonnes, the largest weekly rise since early February.

Among other precious metals, silver was down 0.5 percent at $16.00 an ounce, while platinum was down 0.6 percent at $997 an ounce and palladium down 0.7 percent at $696.50 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore, editing by David Evans)