Gold slips, but on track for second straight weekly gain

By Sethuraman N R

(Reuters) - Gold edged lower on Friday as the dollar recovered some of its early losses, but the bullion was still on track for its second successive weekly gain.

Spot gold was slightly down 0.2 percent at $1,335.90 per ounce by 0724 GMT. The metal was set for a nearly 1 percent gain this week.

U.S. gold futures were also slightly down at $1,340.60.

"Gold is going to follow the dollar so closely till the U.S. Federal Reserve meeting in September and could trade within a range of $1,335-$1,365," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

The metal has given up much of its strong gains from earlier this week, when weak U.S. jobs data led investors to bet that a September rate rise was no longer on the cards, weakening the dollar.

Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which the metal is priced.

The dollar index, which measures the greenback against a basket of currencies, was down 0.1 percent at 94.929, after touching a low of 94.803.

Spot gold may retrace to $1,327 per ounce as it failed to break a resistance at $1,352, according to Reuters technical analyst Wang Tao.

The European Central Bank held interest rates at record lows and kept the door open to more stimulus on Thursday but gave few hints about its next move, disappointing markets that had priced in a decisively dovish tone.

Accommodative monetary policies favor gold and equities because low interest rates encourage investors to opt for assets that do not rely on interest yields.

"Gold prices have had ample of opportunity to sell-off, but there has been a lack of follow through selling. Conversely there has been regular dip buying," analysts at ScotiaMocatta said in a note.

"As such, we think Gold's bull market remains in force, but upside progress may be gradual. In turn, this means it may be more sustainable."

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.13 percent to 950.62 tonnes on Thursday.[GOL/ETF]

Spot silver was down 0.7 percent at $19.51 per ounce.

Platinum slipped 0.3 percent to $1,079.90 an ounce. Platinum was on track for first weekly gain in six. It was up about 2 percent so far this week.

Palladium was flat at $682.60 and was on track for its first weekly gain in three.

(Reporting by Nallur Sethuraman in Bengaluru; Editing by Joseph Radford and Gopakumar Warrier)