By A. Ananthalakshmi
SINGAPORE (Reuters) - Gold was trading near its highest in 2-1/2 weeks on Friday, on track for its best week in a month on weaker equities and growing hopes the U.S. Federal Reserve would hold off on raising interest rates.
Bullion, already supported by mounting tensions in Ukraine, got a further boost on Wednesday when the Fed's March meeting minutes showed that policymakers were not keen on increasing interest rates straight after the wind-down of bond purchases, as the markets had feared.
Spot gold was steady at $1,317.50 an ounce by 0647 GMT, after three straight days of gains. The precious metal is up 1.2 percent for the week, having hit a peak of $1,324.40 on Thursday - its highest since March 24.
Prices could be at risk of losing momentum as outflows from gold funds continue and physical demand in Asia remains weak, some traders said.
"Gold has a higher trading band but unless it closes tonight above $1,325, I don't think it will be able to hold the gains," said Brian Lan, managing director of GoldSilver Central Pte Ltd in Singapore.
"If prices fall below $1,300, we could see physical demand come back up."
Gold's safe-haven appeal was also boosted by the biggest one-day drop on the Nasdaq since August 2011 on Thursday. Japanese shares sank to six-month lows on Friday, while most Asian share indexes were also in the red.
Outflows from SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, slowed on Thursday to about 0.26 tonnes, compared with 2.70 tonnes earlier in the week.
But the fund still hasn't seen any inflows since March 24, implying underlying bearishness.
PHYSICAL DEMAND
Buying in Asia has been quiet for over a month now, with top purchaser China on the sidelines due to a drop in the yuan.
Local Chinese prices have been at a discount to London prices for over a month, compared with a premium of about $20 an ounce earlier in the year.
Prices briefly flipped to a premium this week but fell back down to a discount of about $1 on Friday.
Premiums in other parts of Asia were largely steady, according to dealers.
(Reporting by A. Ananthalakshmi; Editing by Richard Pullin and Sunil Nair)
