* Gold set for biggest weekly drop in nine weeks
* Silver is week's worst-performing precious metal
(Updates prices)
By Jan Harvey
LONDON, Oct 30 (Reuters) - The price of gold steadied on
Friday as a retreat in the dollar helped it snap two days of
losses, but prices remained near three-week lows after the U.S.
Federal Reserve indicated that it might still raise interest
rates this year.
The price was also on track for its biggest weekly drop in
nine weeks, down 1.4 percent, after the Fed indicated after its
two-day policy meeting this week that a December rate rise is
still a possibility. ID:nL1N12R2IF
Rising interest rates tend to weigh on gold because they
lift the opportunity cost of holding non-yielding bullion while
boosting the dollar, in which it is priced.
Spot gold XAU= was at $1,145.55 an ounce by 1220 GMT,
little changed from $1,145.51 late on Thursday, after slipping
to its lowest since Oct. 9 at $1,144.01 earlier. U.S. gold
GCv1 for December delivery was down $2.30 at $1,145.00.
"The market was clearly anticipating kicking rate rises into
the long grass, and of course a December rate rise is still very
much on the cards," Mitsubishi analyst Jonathan Butler said.
"The correction was a perfectly natural response to that.
(But) it's interesting that we've only traced back to where we
were in early October. There may be further pain to come as the
Fed's intentions becomes clearer, but with yields having moved
higher, probably the worst is over in the very short term."
Gold took some support from a 0.3 percent drop in the dollar
against a basket of currencies, with the yen strengthening after
the Bank of Japan made no move on monetary policy, disappointing
some speculators who had bet that the central bank would expand
its huge stimulus programme. FRX/
Expectations that the Fed may raise rates while other
central banks loosen monetary policy is still likely to support
the dollar in the longer term, however, weighing on gold.
"The reality of tightening U.S. monetary policy is still
set to strengthen the U.S. dollar and see Treasury yields rise,"
Societe Generale (PA:SOGN) analysts said in a note. "Against this backdrop
we still expect both gold and silver to drop markedly."
Silver prices are on track for the biggest fall of the main
precious metals this week, down 1.5 percent. Silver XAG= was
down 0.1 percent at $15.55 an ounce on Friday.
As silver underperformed, the gold-silver ratio, which
measures the number of silver ounces needed to buy an ounce of
gold, rose back to 73.8 on Friday, recovering further from the
four-month low of 71.3 hit earlier this month.
Spot platinum XPT= was down 0.2 percent at $987.99 an
ounce, while palladium XPD= was up 0.7 percent at $672.75.