By Clara Denina
LONDON (Reuters) - Gold hit a 3-1/2 week high on Friday and was set for its biggest weekly gain in seven as the dollar and equities fell after U.S. President Barack Obama authorised air strikes in Iraq, adding to simmering international tensions and sapping appetite for risk.
Obama said in an address he had authorised targeted strikes to protect the besieged Yazidi minority and U.S. personnel in Iraq, after the Iraqi government requested help.
Spot gold hit its highest since July 14 at $1,322.60 an ounce earlier, and was up 0.3 percent at $1,316.80 by 1003 GMT. The metal has gained 1.9 percent this week, its first increase in four weeks and the highest weekly gain in seven.
U.S. gold futures for December delivery were up $6.20 at $1,318.70 an ounce.
The dollar was down 0.1 percent against a basket of currencies, under pressure from by a 14-month low in 10-year U.S. Treasury yields.
A weaker U.S. currency makes dollar-denominated assets such as gold cheaper for other currency holders, while returns on bond yields are closely watched by the gold market, given that the metal pays no interest.
Bullion was also lifted by lower equity markets on growing fears that conflicts in Ukraine and the Middle East could sap global growth.
Fighting resumed in Gaza between Palestinian militants and Israel after a 72-hour ceasefire expired.
Moscow banned imports of most food from the West on Thursday in retaliation against sanctions against it over Ukraine, a stronger-than-expected response that isolates Russian consumers from world trade to a degree unseen since Soviet days.
The European Central Bank warned the conflict in Ukraine posed a serious risk to the bloc's economy.
Gold is usually seen as an insurance against political and financial risk, which burnish its appeal as an alternative investment.
The metal has been kept in small trading ranges around $1,300 over the past few weeks as speculation that the Federal Reserve could raise rates sooner than expected after encouraging U.S. labour economic data pushed the dollar to 11-month highs.
"We keep seeing some strength in gold prices on geopolitical tensions but we constantly see rallies fade... before the important $1,345 level," Sharps Pixley CEO Ross Norman said.
"We've come through some technical levels but we keep losing momentum on the upside ... gold keeps reverting to a mean, which is killing enthusiasm ... only very serious escalation of tensions in Ukraine or the Middle East could drive price prices higher."
Meanwhile, in the physical markets, buying interest slowed with the price gains. Prices in top buyer China were on a par with the global benchmark, whereas earlier in the week gold commanded premiums of about $2 or $3 there.
Persistent weakness in physical demand would make it hard for gold to sustain any price rally.
Among other precious metals, silver rose 0.9 percent to $20.08 an ounce. Platinum was up 0.5 percent to $1,479.10 an ounce, while palladium gained 0.8 percent at $857.05 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; editing by David Evans)
