Gold set for weekly drop on dollar, equities gains

Gold edged up on Friday following three days of declines, but 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 to their highest levels since late December on Thursday, boosted by robust Chinese economic data and a surge in oil prices earlier this week.

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Spot gold was up 0.2% at $1,229.06 an ounce by 0941 GMT, following a drop of 1.3% in the previous session. It was heading for a 1% loss for the week.

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 US Federal Reserve will push ahead with several rate hikes 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.

"It is a cost for people to hold cash and fixed income and it devalue fiat currencies, so people are still turning to gold."

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 US interest rate hike in April, but added there is still time for two or three rate hikes this year.

The Fed will raise interest 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 seen 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, the lowest in a month.

Among other precious metals, silver was on track to post a 5% weekly gain, its biggest jump in six weeks. It was up 0.3% at $16.19 an ounce, after hitting its highest level since October earlier this week.

Platinum was headed for its third straight weekly gain, but was down 0.6% at $983.50 an ounce, while palladium fell 0.3% at $559.40 but was poised for its best week in six with a 4.5% rise.

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

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