Gold set for weekly drop on dollar and equities gains

By Clara Denina

LONDON (Reuters) - Gold steadied on Friday after three days of declines and was heading for its first weekly drop in three as a stronger dollar and higher equities kept investor interest in check.

Bullion climbed to a three-week high on Tuesday, only to give up gains as world stocks rose on Thursday to their highest levels since late December, boosted by robust Chinese economic data and a surge in oil prices earlier this week.

Spot gold was up 0.1 percent at $1,229.06 an ounce by 1438 GMT, following a drop of 1.3 percent in the previous session. It was heading for a 1 percent loss for the week.

"Lately, we've had some indicators that the growth fears have eased and things are looking a bit more positive," Julius Baer commodity analyst Warren Kreyzig said.

"But there are a lot of negative surprises on the economic data front."

Gold prices have steadied after posting their biggest quarterly rise in nearly 30 years in the three months to March, driven by a reining in of expectations that the U.S. Federal Reserve will push ahead with several interest rate increases this year.

"We are seeing central banks having separation anxiety with their stimulus policies and so much stimulus tends to devalue currencies and that's the follow through from negative real rates," ETF Securities analyst Martin Arnold said.

Higher interest rates would lift the opportunity cost of holding non-yielding assets while boosting the dollar.

Atlanta Federal Reserve Bank President Dennis Lockhart on Thursday said he no longer expects to advocate for a U.S. interest rate hike in April, but added that there is still time for two or three rate increases this year.

The Fed will raise rates twice this year, most likely in June, but the probability has faded on signs of a weak start to the year, inflation that is still tame and a brittle global backdrop, a Reuters poll showed.

Bullion-backed exchange-traded funds have experienced outflows in recent days, weighing on gold prices.

Assets in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell to 806.82 tonnes on Thursday, its lowest in a month.

Among other precious metals, silver was on track to post a 5 percent weekly gain -- its biggest jump in six weeks. It was up 0.1 percent at $16.16 an ounce, having touched its highest level since October earlier this week.

Platinum was headed for its third straight weekly gain but was down 0.7 percent at $980.65, while palladium was up 0.5 percent at $564.68 and poised for its best week in six with a 4.4 percent rise.

European car sales rose 5.7 percent in March, industry data showed, helped by discounts and other incentives.

Platinum and palladium are used in autocatalysts to clean up exhaust emissions.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by David Evans and David Goodman)