Gold edges up on softer dollar, uncertainty over Greece

By Marcy Nicholson and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold edged up on Friday from the previous day's 2-1/2-week low, supported by a softer dollar and uncertainty over Greece's debt talks, but remained under pressure from expectations U.S. interest rates might rise soon.

The prospect of higher rates, which would boost the opportunity cost of holding non-yielding gold while lifting the dollar, kept the metal on track for a second weekly drop.

Spot gold (XAU=) was up 0.3 percent at $1,190.70 an ounce at 2:33 p.m. EDT (1833 GMT), on track to close May up 0.6 pct, the second straight small monthly increase. U.S. gold futures (GCv1) for June delivery settled up $1.30 an ounce at $1,189.40.

"The gold market will eventually have to discount the fact that the Fed is not going to put through a series of rate hikes, one after the other, but will rather just put in one in and wait," said Edward Meir, INTL FCStone analyst.

"If it does that, I think the market should respond by moving a bit higher. In the meantime, we're in this drift doing nothing."

The dollar (.DXY) weakened on Friday after data showed the U.S. economy contracted in the first quarter. [FRX/]

The greenback's weakness came after rallying nearly 3 percent after Federal Reserve Chair Janet Yellen said last week that the U.S. central bank was on track to raise rates later this year.

"The recent surge in the dollar, which pushed crude oil prices lower, has put pressure on gold," ING commodities analyst Hamza Khan said.

There were mixed signals this week on the outcome of talks over Greece's debt, without which Athens risks default or bankruptcy in weeks.

A Greek government spokesman said on Thursday that it intended to agree a cash-for-reforms deal by Sunday. Euro zone officials suggested, though, that a deal was far from imminent, and the head of the International Monetary Fund was quoted as saying Greece could fall out of the euro zone.

"While gold hasn't gained much of an upside (from the uncertainty over Greece) ... it hasn't seen much of a downside, given the resurgence of the dollar," Standard Chartered's global head of commodities research Paul Horsnall said.

Dealers noted quiet gold trading overnight in Asia, the metal's main physical markets, where premiums in major trading centres failed to rise this week despite the price drop.

Among other precious metals, silver (XAG=) was up 0.2 percent at $16.70 an ounce. Platinum (XPT=) was down 0.3 percent at $1,109.74 and palladium (XPD=) was down 1 percent at $774.98.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Larry King and Marguerita Choy)