PRECIOUS-Gold gains as U.S. inflation offsets GDP data

(Updates prices)
* Second-quarter GDP increases at 2.1% rate
* Dollar rises to two-month high
* Markets eye Fed's July 30-31 meeting

By K. Sathya Narayanan
July 26 (Reuters) - Gold prices rose on Friday, after
slipping to more than one-week lows in the previous session, as
soft U.S. inflation numbers offset better-than-expected
second-quarter economic growth that kept bets alive for an
imminent interest rate cut.
Spot gold XAU= was up 0.3% at $1,418.58 per ounce as of
1:42 p.m. EDT (1742 GMT), but still on track for the first
weekly drop in three weeks.
U.S. gold futures GCv1 settled up 0.3% at $1,419.30 per
ounce.
The report from the U.S. Commerce Department showed that the
economy slowed less than expected in the second quarter as gross
domestic product increased at a 2.1% annualised rate. The report also showed a pickup in inflation last quarter,
though the trend remained benign. A gauge of inflation tracked
by the Federal Reserve increased at a 1.8% rate last quarter,
just below the U.S. central bank's 2% target.
"The GDP number suggest that Fed may not be as aggressive as
they once were but the reason we haven't collapsed is the
inflation number was a little bit worrying," INTL FCStone
analyst Edward Meir said.
Federal funds futures FEDWATCH implied traders saw about
84.5% chance for a quarter-point rate cut at the U.S. central
bank's July 30-31 policy meeting, higher than the probability
seen shortly before the release of the GDP data.
Lower interest rates reduce the opportunity cost of holding
non-yielding gold.
Capping gold's momentum was a stronger dollar .DXY , which
held near two-month highs against a basket of major currencies.
USD/
"The market will now focus its attention on next week's Fed
meeting ... if Fed Chair Powell indicates that a rate cut cycle
is imminent, the dollar is likely to depreciate, which should in
turn benefit gold," Commerzbank said in a note.
Uncertainties over whether Washington and Beijing will be
able to settle their trade differences kept many investors on
their guard. Negotiators from the two sides will meet in
Shanghai next week.
Silver XAG= was down 0.3% at $16.35 per ounce, while
platinum XPT= slipped 0.2% to $863.38.
However, both silver and platinum were on track for a third
week of gains, having risen about 1% and 2.4%, respectively, so
far.
Analysts say the disparity in silver and platinum prices
compared with gold has made the two metals attractive for
traders.
Palladium XPD= was flat $1,530.96 per ounce, but was on
track to post a weekly gain after declining for two.