By Marcy Nicholson and Peter Hobson
NEW YORK/LONDON (Reuters) - Gold rose on Friday and was on course for its first weekly gain in three as the U.S. Federal Reserve's cautious message on interest rates left the dollar around five-week lows, making bullion cheaper those holding other currencies.
The Fed raised U.S. rates on Wednesday, as expected, but its earlier forecast of three rate increases this year remained unchanged, disappointing some investors who had hoped for hints of a possible fourth hike in 2017.
Spot gold was up 0.2 percent at $1,229.40 an ounce by 2:53 p.m. EDT (1853 GMT), taking this week's gain so far to 2.1 percent. Prices hovered just below the Thursday session high, when the metal reached $1,233.13, its highest since March 6.
It rallied 2.3 percent on Wednesday and Thursday following the Fed's statement.
"Everything's quieted down today. The surge we've seen in the last couple of days has been correlated with what we've seen in bonds and stocks," said Rob Haworth, senior investment strategist for U.S. Bank Wealth management in Seattle.
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"On the retail side, you're making enough money on stocks that you're probably not as worried about jumping back into gold."
U.S. gold futures settled up 0.3 percent at $1,230.20.
"There is momentum as people start to look again how far they can push gold higher," said Georgette Boele at ABN AMRO.
The dollar had hit a ceiling and would fall further in the near term, she said.
U.S. President Donald Trump's failure so far to push through promised economic stimulus measures may have influenced the Fed, said Tom Kendall at ICBC Standard Bank.
"If infrastructure spending and tax cuts are being pushed further and further out, it gives the Fed more reason to be cautious," he said. "That is a bit of a vacuum that gold can rally into."
Rate rises lead to higher bond yields, which increase the opportunity cost of holding non-yielding bullion and tend to boost the dollar, in which gold is priced.
Investors were also looking ahead to the Group of 20 (G20) finance leaders' meeting in Germany this weekend, where any attempt by the Trump administration to pursue protectionist policies could fuel demand for gold as a safe-haven.
Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares , fell 0.28 percent on Thursday, the first outflow this week.
Silver was up 0.5 percent at $17.37 an ounce, while platinum gained 0.3 percent to $956.20. Palladium advanced 1.7 percent to $776.90, after rising to $779.30, it highest since March 1.
(Additional reporting by Nallur Sethuraman in Bengaluru; Editing by David Goodman and Nick Zieminski)