Gold slips as equities recover, still set for weekly gain

By Jan Harvey

LONDON (Reuters) - Gold eased on Friday as strength in equities prompted investors to cash in some of the previous day's gains but remained on track for its biggest weekly rise in five as the Federal Reserve remained cautious on U.S. interest rate increases.

Stocks rebounded on Friday but were still set to end a bruising and volatile week lower, fed by growing uncertainty surrounding the U.S. economic and policy outlook.

Spot gold was down 0.2 percent at $1,237.60 an ounce by 1400 GMT, while U.S. gold futures for June delivery were up $1 at $1,238.50. Prices are up 1 percent this week, chiefly because of Thursday's 1.5 percent rally.

The metal has been hemmed into a narrow range by uncertainty over the path the U.S. central bank will take to raising interest rates.

Fed Chair Janet Yellen, in a conversation with former Fed chairmen on Thursday, said that the U.S. economy is still on track to warrant further rate rises. But U.S. interest rate futures still indicate a less than 20 percent chance of a rate hike in June.

Higher rates would weigh on gold by lifting the opportunity cost of holding non-yielding bullion. Waning expectations for further rate increases this year helped gold to its best quarter in nearly 30 years in the three months to March.

"Janet Yellen said (the Fed) will be moderate in making hikes in the future, so the markets no longer anticipate the four interest rate hikes they did at the end of 2015," LBBW analyst Thorsten Proettel said.

Proettel added that he remains bearish on prices, saying that positioning on the futures markets looks overstretched, while inflows into gold-backed exchange-traded products is drying up. "We had huge inflows into gold ETPs in January and February, but they've just come to a stop," he said.

Data from the world's largest gold-backed exchange-traded fund -- New York-listed SPDR Gold Shares -- showed its holdings are little changed this week after posting the year's first weekly outflow last week.

Demand for physical gold from Asia has also been muted of late, analysts said.

"What is interesting about the gold market at the moment is that the driving forces are not the traditional ones -- the main engine rooms have been China and India, but buying in those regions has been distinctly light," said Ross Norman, chief executive of Sharps Pixley.

In other precious metals, silver was up 0.6 percent at $15.30 an ounce, platinum gained 1.3 percent to $960.51 and palladium rose 1.6 percent to $541.63.

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