Weaker dollar keeps gold on course for third weekly gain

By Peter Hobson

LONDON (Reuters) - A weaker dollar helped to push up gold on Friday, putting the metal on track for a third straight weekly increase, though gains were capped by profit-taking on long positions.

Spot gold edged 0.1 percent higher at $1,196.08 an ounce by 1058 GMT, up 2 percent on the week.

But the metal was unable to maintain a seven-week high of $1,206.98 touched in the previous session after President-elect Donald Trump had failed to elaborate on U.S. fiscal stimulus plans at a chaotic news conference, triggering demand for safe-haven gold.

Investors took the opportunity to cash in bets on higher prices, said Mitsubishi analyst Jonathan Butler.

"There's clearly plenty of new long positioning that has come into the market, and at these (price) levels there's room to take profit," he said.

Gold has risen 6.5 percent since a mid-December low.

U.S. gold futures were down 0.2 percent at $1,196.90.

The dollar, which hit a five-week low on Thursday after Trump's comments, weakened 0.2 percent against a basket of currencies, making gold cheaper for non-U.S. investors.

The higher gold price depressed physical gold sales in Asia this week as buyers stayed on the sidelines and premiums remained mostly unchanged.

In India, the world's second-largest consumer of the metal, higher prices prompted retail buyers to postpone purchases for wedding season.

Investors were looking ahead to Trump's inauguration on Jan. 20, when he is expected to finally provide detail on the infrastructure and spending plans that have driven a rally in U.S. assets.

Such details could revive the rally and weaken the gold price, Mitsubishi's Butler said.

"Trump's economic policies, in particular tax cuts for corporates, could lead to ever-higher equity valuations that divert funds away from bullion and into higher-return assets," he said.

Analysts at Scotiabank, however, said they expect gold to strengthen further if support at $1,178 an ounce holds.

Several Fed officials on Thursday cautioned that Trump's fiscal and tax plans could spur a short-term economic boost that would result in longer-run inflation and debt problems, potentially raising demand for gold as an inflation hedge.

Among other precious metals, spot silver was flat at $16.77, having hit its highest in almost a month at $16.92 in the previous session. The metal has gained 1.8 percent this week.

Platinum was down 0.1 percent at $971.15. It touched a two-month high of $990.10 the previous day.

Palladium fell by 0.3 percent to $754.18.

(Additional reporting by Nallur Sethuraman in Bengaluru; Editing by David Goodman)