(Updates prices as of 0455 GMT)

* Gold hovers near two-week low, down 3% so far this week

* Silver, platinum, palladium head for worst week in three

* Oil prices up about 12% for the week so far

By Pablo Sinha

July 17 (Reuters) - Gold was on track for its biggest weekly

loss in six on Friday, as escalating U.S.-Iran clashes lifted

oil prices, adding to inflationary pressures and strengthening

the case for higher U.S. interest rates.

Spot gold was up 0.3% at $3,980.64 per ounce by 0455 GMT,

having touched its lowest since July 1 earlier in the session.

U.S. gold futures for August delivery lost 0.2% at

$3,984.10.

The metal, however, has lost 3.4% so far this week, its largest

decline since June 1, with the ongoing Middle East tensions

outweighing support from softer June U.S. inflation figures

released this week.

"Even with tamer CPI and PPI figures, the oil price spike

this week meant traders simply couldn't celebrate the cooler

inflation numbers," said Tim Waterer, chief market analyst at

KCM Trade.

"Geopolitical risks in the Middle East are still present,

with inflation and yield concerns being the dominant forces

holding gold back."

Iran and the United States exchanged intensifying fire on

Thursday in a week-long escalation that has largely unravelled

last month's truce.

Oil prices have jumped about 12% so far this week due to limited

oil flows out of the Strait of Hormuz, with Tehran asking the

Houthi movement to stand ready to shut the Red Sea export route.

The surge in oil prices risks reigniting inflation worries

and increasing the likelihood of interest rate hikes.

Non-yielding gold typically struggles in a high-interest-rate

environment, as investors gravitate toward assets offering

higher returns.

Dallas Federal Reserve President Lorie Logan became the first of

Fed Chairman Kevin Warsh's new colleagues to call publicly for a

rate hike.

Fed Vice Chair Philip Jefferson also suggested he would be open

to raising rates if there is no near-term improvement in

inflation.

Traders are currently pricing a 73% chance of an interest

rate hike in December, according to the CME FedWatch Tool.

Elsewhere, spot silver fell 0.6% to $55.20 per ounce,

platinum lost 1.1% to $1,599.17, and palladium

eased 0.4% to $1,244.16. All three metals were headed for a

weekly loss.