Gold prices rise on subdued dollar; Fed stance limits gains

By Karthika Suresh Namboothiri

(Reuters) - Gold inched up on Friday as optimism over U.S.-China trade talks pressured the dollar, but signs that the U.S. Federal Reserve could raise interest rates again this year kept prices below a 10-month high hit earlier this week.

Spot gold rose 0.3 percent to $1,326.56 per ounce as of 0814 GMT. The metal was headed for a second straight weekly rise, up almost 0.4 percent this week.

U.S. gold futures were up 0.1 percent at $1,329.1 per ounce.

"The dollar's trajectory and soundings from the Fed will obviously play on gold prices, but the metal's focus is now more on key levels than key events," said Ronan Manly, a precious metals analyst at BullionStar Singapore.

"The main target is still the technically important area between $1,350 and $1,360 above which would be a one year high."

The dollar index against a basket of six major currencies was set to decline about 0.3 percent this week, which could be its biggest weekly fall in a month. The U.S. unit has been under pressure on hopes of a U.S.-China trade deal.

U.S. and Chinese negotiators resumed high-level talks on Thursday to hash out a deal that could end their trade war, just over a week before a U.S.-imposed deadline.

"On a day to day basis gold is a function of changing currency markets and the U.S. dollar. Medium outlook is a lot more to do with geopolitical issues and yields" said Kyle Rodda, a market analyst with IG Markets.

"But the fact that it was overbought-driven very much by a new yield environment, tensions around the world especially around geopolitics, is keeping gold prices elevated."

Gold had hit a 10-month high of $1,346.73 on Wednesday, but minutes from the Fed's January policy meeting indicated there might in fact be a rate hike this year, erasing gains in gold.

"Dovish signals from U.S. Federal Open Market Committee officials for the shorter term have kept global equities steady whilst applying bearish pressures on the non-interest bearing asset," Phillip Futures said in a note.

Higher interest rates reduce investor interest in non-yielding bullion.

Indicative of investor sentiment toward bullion, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, dropped 0.63 percent to 789.51 tonnes on Thursday.

Elsewhere, palladium gained nearly 1 percent to $1,480.96 per ounce, having surpassed the key $1,500 level for the first time on Feb. 20.

The autocatalyst metal was on track for a third straight week of gains, up nearly 3 percent.

Platinum rose 0.4 percent to $822.50, and was set for its best week since early January. Silver was up 0.6 percent to $15.90. It was poised to snap two consecutive weekly losses.

(Reporting by Karthika Suresh Namboothiri in Bengaluru; Editing by Rashmi Aich)