PRECIOUS-Gold rebounds on dollar, still set for weekly fall

* Gold on track for 1.2 percent weekly fall
* All eyes on Fed meeting next week

(Updates prices, adds comment)
By Clara Denina
LONDON, Dec 11 (Reuters) - Gold prices bounced on Friday,
erasing earlier losses as the dollar fell, but was still on
track for a seventh weekly drop in eight as investors positioned
themselves for a likely U.S. rate rise next week.
A rate increase at the Federal Reserve's policy meeting on
Dec. 15-16 would be the first in nearly a decade and could dent
demand for non-interest paying gold.
"Temporary short squeezes could disturb the long-term
downward trend but we still expect prices around $1,000 next
week," ABN Amro analyst Georgette Boele said.
Spot gold XAU= , lower initially, was up 0.2 percent to
$1,072.35 an ounce by 1507 GMT. It was on track for a 1.2
percent decline for the week.
"What we are likely to see in the next three months is the
discussion moving from the rate hike to the pace of rate
tightening cycle," ETF Securities strategist Martin Arnold said.
"A broad range between the high $1,080s to $1,030 is where
we are going to see gold in the first quarter, starting towards
the lower end of the range in a knee-jerk reaction to the Fed's
move and then grinding higher throughout Q1."
The dollar fell against key world currencies amid a selloff
sparked by market volatility concerns and slumping commodity
prices that overshadowed solid U.S. retail sales data. FRX/
Technically, gold's outlook remains neutral between $1,064
and $1,084 per ounce, but a break below $1,064 could take prices
back to multi-year lows, according to Reuters technical analyst
Wang Tao.
Weakness in crude oil prices at seven-year lows could
trigger fears of deflation, a bearish factor for gold, which is
often used as a hedge against oil-led inflation. O/R
Short positions in COMEX gold futures and options are at
record highs, while assets in SPDR Gold Trust, the top bullion
exchange traded fund, are at their lowest since September 2008.
Investors have boosted bets that the gold price will soon
drop to $1,000 an ounce, options data shows.
Gold, on track for a third straight annual decline, has lost
9.5 percent of its value this year.
Among other precious metals, silver XAG= and platinum
XPT= were also headed for a seventh weekly loss in eight
weeks. Silver was down 1.5 percent at $13.90 an ounce, while
platinum fell 1.4 percent to $837 an ounce.
Palladium XPD= rose 0.6 percent to $542.63 an ounce, but
was down more than 3 percent for the week.