Gold edges higher, still set for weekly drop

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Gold rose on Friday after three days of declines as the U.S. dollar and major stock markets weakened, but bullion was headed for its first weekly drop in three.

Bullion had climbed to a three-week high on Tuesday, only to give up gains as world stocks rose on Thursday to their highest levels since late December, boosted by robust Chinese economic data and a surge in oil prices earlier this week.

Silver rose to a 10-month high as its value relative to gold surged by the most in 2-1/2 years this week.

This is what's driving gold prices
This is what's driving gold prices

Spot gold was up 0.54 percent at $1,233.66 an ounce. It was heading for a 0.6 percent loss for the week. U.S. gold futures for June delivery settled up 0.7 percent at $1,234.60 per ounce and were last up 0.8 percent at $1,235.80 per ounce.

"Gold was off this morning on a stronger European stock market but it didn't last as the this morning's capacity utilization and industrial production numbers were weaker than expected, indicating continued U.S. economic weakness," said Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York.

Gold prices have steadied after posting their biggest quarterly rise in nearly 30 years in the first quarter, driven by a reining in of expectations that the U.S. Federal Reserve will push ahead with several interest rate increases this year.

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"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.

Chicago Federal Reserve President Charles Evans said the Fed seems to be on track for at least two interest rate increases over the rest of the year. A Reuters poll showed the Fed will raise rates twice this year, most likely beginning in June.

Higher interest rates would lift the opportunity cost of holding non-yielding assets while boosting the dollar.

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Assets in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell to a one-month low on Thursday.

Among other precious metals, silver futures were on track to post a 5.8 percent weekly gain, the biggest jump since May. They were up 0.51 percent at $16.25 an ounce, after touching $16.37, the highest since June 2015.

Platinum futures were headed for a third straight weekly gain but were down 0.6 percent at $987 an ounce, while palladium futures were up 1.56 percent at $565.25.

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

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