* Gold up 1.8 pct this week
* Dollar hits 13-month low, bond yields fall
* Resistance around $1,250
* SPDR Gold Trust holdings down 4.3 pct this month
(Updates prices) LONDON, July 21 (Reuters) - Gold was set for its biggest weekly gain in two months on Friday as a surging euro pushed the dollar to its weakest since June 2016, making bullion cheaper for holders of other currencies. Bond yields also fell after Mario Draghi said on Thursday the European Central Bank was in no rush to scale back its asset purchase programme.
Lower yields help gold prices by reducing the opportunity cost of holding non-yielding bullion.
Spot gold was up 0.6 percent at $1,251.61 an ounce at
1329 GMT, after earlier touching $1,252.07, the highest since June 29. It was on track for a weekly gain of 1.8 percent.
U.S. gold futures for August delivery were 0.4
percent higher at $1,250.90 an ounce. While gold was benefiting from the dollar's weakness against the euro and the move in yields, its gains would be limited by expected interest rate rises by the U.S. Federal Reserve and it would remain in a $1,200-$1,250 range, ABN AMRO analyst Georgette Boele said. Gold is highly sensitive to rising interest rates because they cause bond yields to rise and tend to boost the dollar. The Fed's rate-setting committee is due to meet on July 25 and 26. Gold broke through resistance at its technically important 100- and 50-day moving averages, both around $1,250. "We look to a break through the 100- and 50-day moving averages as a pivot point for further gains," MKS PAMP trader Sam Laughlin said in a note. Support was at the 200-day moving average around $1,230, analysts at ScotiaMocatta said. Falling bond yields and a weakening dollar have helped gold rise 3.9 percent from a low of $1,204.45 on July 10, but this was driven by short-covering and not backed by demand for physical metal, Julius Baer analyst Carsten Menke said. "Unless investment demand improves, the positioning-driven recovery should run out of steam," he said in a note. Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, have fallen 4.3 percent, or 1.2 million tonnes, this month.
In other precious metals, silver was up 0.9 percent
at $16.44 an ounce after earlier touching $16.51, the highest since July 3. Silver has risen more than 3 percent this week.
Platinum was 0.8 percent higher at $933.74 an ounce
and on track for a weekly gain of around 2 percent. Palladium was up 0.7 percent at $848.50 an ounce, but set for a weekly fall of around 1 percent.
(Additional reporting by Nithin Prasad and Arpan Varghese in Bengaluru; Editing by Alexander Smith and Adrian Croft)