Gold set for weekly drop as appetite for risk curbs haven demand

Gold steadied on Friday after three days of declines, but was heading for its first weekly drop in three as strength in the dollar and global equities curbed appetite for the safe-haven metal.

Bullion climbed to a three-week high on Tuesday but gave up those 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 early this week.

Asian shares and the dollar got off to a subdued start on Friday but were still headed for weekly gains. Spot gold steadied at $1,228.50 an ounce by 0308 GMT, following a drop of 1.3 percent in the previous session. It is down 1 percent for the week.

"The rally earlier this week was tied to the strength of Japanese yen and risk aversion. But that has retreated now," said a Hong Kong-based gold trader. Gold's inability to climb to 2016 highs near $1,280 earlier this week shows the metal's rally could be fading, he said.

"The market is pricing in only one U.S. rate hike this year, so there will be more price adjustments if there are more.” Gold prices have steadied after posting their biggest quarterly rise in nearly 30 years in the three months to March, driven by a retreat on expectations that the U.S. Federal Reserve will push ahead with several rate hikes this year.

Gold is sensitive to rising interest rates, which 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 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 percent weekly gain, its biggest jump in six weeks. It hit its highest level since October earlier this week before giving back some gains. Platinum was headed for its third straight weekly gain, while palladium was poised for its best week in six with a 4.5 per cent rise.

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