By Jan Harvey
LONDON (Reuters) - Gold slipped for a third day as buyers cashed in on a recent rally to near three-week highs, but it stayed on track for a second successive weekly gain driven by fading expectations of an imminent hike in U.S. interest rates.
The metal is up 0.7 percent so far this week, holding on to nearly half the sharp gains it made on Tuesday after downbeat U.S. data fuelled talk that the Federal Reserve will hold off raising rates at its September policy meeting.
Spot gold was down 0.25 percent at $1,334.60 an ounce at 1152 GMT on Friday, while U.S. gold futures for December delivery were $3.40 lower at $1,338.20. Gold peaked at $1,352.65 an ounce after rallying 1.8 percent on Tuesday.
"Tuesday's rally was to be expected in light of the weak numbers out of the U.S., but the current more subdued tone, not so much," Capital Economics analyst Simona Gambarini said.
"There is... maybe some profit-taking among some people who got in $30 lower. (Now) it's all about the Fed meeting in a couple of weeks. That's what investors are looking at."
Expectations that the Fed would stand pat on interest rates after hiking for the first time in nearly a decade in December have helped push gold 26 percent higher this year.
Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
Markets remain uncertain over the outlook for rates, allowing the dollar to claw back some ground it lost against the euro after a European Central Bank statement on Thursday. It remained lower, however.
The ECB kept the door open to more stimulus but gave few hints about its next move, disappointing those who had priced in a dovish tone. The euro bounced in response, though gold prices shrugged off dollar weakness to fall.
"The ECB's decision to leave policy unchanged may have refocused market participants on the possibility that the Fed sends a hawkish signal in the coming days before its pre-meeting quiet period begins next Tuesday," BNP Paribas said in a note.
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, fell 0.13 percent to 950.62 tonnes on Thursday.
Gold demand in Asia remained subdued this week as higher prices kept buyers at bay, but upcoming festivals following a good monsoon in India may stimulate demand, analysts said.
Silver was down 0.7 percent at $19.45 an ounce, while platinum was 0.3 percent lower at $1,079.50 an ounce. It was however on track for its first weekly gain in six, up 1.7 percent.
Palladium was down 0.1 percent at $681.55.
(Additional reporting by Nallur Sethuraman in Bengaluru; Editing by Susan Thomas and Alexander Smith)
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