PRECIOUS-Gold set for 5th week of gains, buoyed by slump in dollar

Dollar index hits lowest since September
* Silver heading for first weekly drop in five weeks
* Platinum hits 4-month high, set for 5th straight weekly
gain

– Gold prices rose for a third session on
Friday to hit their highest since September, with a slump in the
U.S. dollar helping drive bullion towards its fifth-straight
weekly gain.

Spot gold had edged up 0.5 percent to $1,328.84 an
ounce by 0703 GMT, after earlier touching its highest since
Sept. 15 at $1,330.34.

The metal is up 0.7 percent so far this week and is set for
its longest run of weekly gains since a streak that finished in
the week ending April 14.

U.S. gold futures were up 0.5 percent at $1,329 an
ounce.

The dollar index,which measures the greenback
against six major currencies, fell to its lowest since Sept. 20
at 91.689.

The euro jumped against the dollar as the European Central
Bank signalled it could begin to wind down its 2.5 trillion euro
($3.01 trillion) stimulus programme this year.

A stronger euro potentially boosts demand for gold by making
dollar-priced bullion cheaper for European investors.

“There is a lot of doubt on how long prices have to run from
here … Prices have risen despite the Fed raising interest
rates and the main driver has been the U.S. dollar, which we
continue to see help gold run higher in the first quarter,” said
Brian Lan, managing director at dealer GoldSilver Central in
Singapore.

Spot gold is expected to test resistance at $1,329 per
ounce, with a good chance of rising more to the next resistance
level at $1,341, according to Reuters technical analyst Wang
Tao.

“There was some strong buying out of China on Friday
suggesting some physical demand ahead of Lunar New year,” said
Stephen Innes, APAC head of trading at Oanda.

The greenback was also under pressure after data showed
producer prices in the United States fell for the first time in
nearly 1-1/2 years in December amid declining costs for
services.

Weak inflation at the producer level could add to concerns
that the factors restraining inflation could become more
persistent and result in the U.S. Federal Reserve being more
cautious about raising interest rates this year.

Higher rates could dent demand for non-interest-paying gold.
Investors will be watching the U.S. Consumer Price Index
(CPI) data due later on Friday.

Among other precious metals, spot silver rose 0.8
percent to $17.11 an ounce. Silver is on track for its first
weekly loss in five weeks, down 0.6 percent so far this week.

Platinum rose 0.7 percent to touch its highest since
Sept. 11 at $991.40 an ounce. Platinum was heading for its fifth
straight weekly gain, rising 1.9 percent so far this week.

Palladium was up 0.5 percent at $1,088.50 an ounce,
after dropping to a more than one-week low at $1,075.50 on
Thursday.

By Sethuraman N R
Jan 12 (Reuters)