* Political drama in Washington unsettles investors
* Gold sees best one-day gain in a month on Thursday
(Updates throughout, adds LONDON dateline) LONDON, May 12 (Reuters) - Gold rose on Friday and was set to end the week slightly higher as the sudden sacking of the FBI head in the United States stoked investor concerns and boosted demand for bullion, even as the dollar headed for its strongest week this year.
Spot gold was up 0.4 percent at $1,228.61 per ounce
best one-day gain in a month.
U.S. gold futures added 0.4 percent to $1,229.26 an
ounce. "You continue to see the political uncertainty continue to support gold," said ETF Securities analyst Martin Arnold, naming the dismissal of the FBI's James Comey and the upcoming British election as sources of uncertainty. U.S President Donald Trump on Thursday ran into resistance for calling ousted Federal Bureau of Investigation chief Comey a "showboat." The attack was swiftly rebuffed by top U.S. senators and acting FBI Director Andrew McCabe, who pledged that an investigation into possible Trump campaign ties to Russia would proceed. Arnold said there were also support from concerns that the equity valuations, which over the last few months were boosted run out of steam due to "policy paralysis." But capping gains in gold are expectations that the U.S. Federal Reserve will increase interest rates in June. New applications for U.S. jobless benefits unexpectedly fell last week, while producer prices rebounded strongly in April, pointing to a tightening labor market and rising inflation that could spur the Fed to raise interest rates. Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced. The dollar was slightly softer on Friday, but headed for its best week of the year while global stocks eased from near record highs. Traders are expecting a 100 percent probability of an interest rate increase in June, CME Group's FedWatch showed. "We get a host of Chinese macro releases out over the weekend, providing the commodity group with more direction heading into next week as well," INTL FCStone analyst Edward Meir said.
Among other precious metals, silver rose 0.9 percent
to $16.39, set for its first weekly rise in four.
Platinum edged up 0.3 percent to $917.60, while palladium rose 0.7 percent to $806.80.
(Additional reporting by Nallur Sethuraman in Bengaluru, editing by David Evans)