By Lewa Pardomuan
SINGAPORE (Reuters) - Gold prices were steady on Friday but remained on track for their worst week since late February as strong equities lured investors seeking better returns, while outflows from exchange-traded funds underlined the shaky outlook for bullion.
Escalating tensions on the Korean peninsula have done little to stir safe-haven buying, though gold could regain some of its lustre if the latest U.S. earnings season disappoints.
Gold was steady at $1,560.84 an ounce by 0628 GMT, heading for a more than 1-percent decline this week, its third such drop in a row.
The metal has slipped around 7 percent so far this year, after rising for the last 12 years, lagging gains of more than 11 percent in the S&P 500 index.
"U.S. equities have continued to defy gravity," said CIMB regional economist Song Seng Wun, adding that the market had also shrugged off the threat of conflict with North Korea.
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"Normally, given rising tensions, there will be flight to safety and gold will benefit. But I suppose at this point, while we are mindful of the increased risk, nobody really believes that the North Koreans will actually carry through on their threats."
A U.S. government agency has said North Korea has a nuclear weapon it can mount on a missile, adding an ominous dimension to threats of war by Pyongyang, but the assessment was swiftly dismissed by several U.S. officials and South Korea.
Setting geopolitical tensions aside, wary investors cut exposure to gold, with total holdings at the world's major bullion ETF falling to their lowest since early 2012.
U.S. gold for June delivery was $1,560.90 an ounce, down $4.00.
The physical market was barely active, with jewellers in Thailand already away ahead of the Songkran holiday next week. Premiums for gold bars were unchanged in Singapore at $1.20 an ounce to spot London prices.
Although top consumer India will celebrate a series of religious festivals considered auspicious for gold purchases, dealers have yet to see a surge in demand from jewellers there.
"It's a thin market and a two-way business. I mean, we are seeing both buying and selling today," said a dealer in Singapore. "Buying is not exceptionally high from India. I would say there isn't anything unusual yet."
Japan's aggressive monetary stimulus initially supported gold this week, but investors were later distracted by signs the U.S. Federal Reserve could soon end its bullion-friendly bond buying programme.
Meanwhile, heavily indebted euro zone nations such as Italy and Portugal could come under pressure to put their bullion reserves to work as a result of plans for Cyprus to sell gold to meet its financing needs.
Fallout from the messy bailout of Cyprus will top the agenda of a two-day EU finance ministers meeting in Dublin beginning on Friday.
Precious metals prices 0628 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1560.84 0.10 +0.01 -6.79
Spot Silver 27.59 -0.01 -0.04 -8.88
Spot Platinum 1523.50 -8.50 -0.55 -0.75
Spot Palladium 728.00 0.00 +0.00 5.20
COMEX GOLD JUN3 1560.90 -4.00 -0.26 -6.86 13016
COMEX SILVER MAY3 27.53 -0.17 -0.60 -8.93 2428
Euro/Dollar 1.3101
Dollar/Yen 99.40
COMEX gold and silver contracts show the most active months
(Editing by Himani Sarkar and Joseph Radford)