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Bullion up over 1% this week so far

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U.S. central bank projects two rate reductions in 2025

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Dollar set for strongest weekly performance since mid

November

(Updates with U.S. morning hours)

By Sherin Elizabeth Varghese

Jan 3 (Reuters) - Gold prices retreated from a

three-week high on Friday, pressured by a robust dollar, while

markets braced for potential economic and trade shifts under

U.S. President-elect Donald Trump.

Spot gold eased 0.3% to $2,649.29 an ounce at 09:37

a.m. ET (1436 GMT), after hitting its highest level since Dec.

13. Bullion is up about 1.1% for the week so far.

U.S. gold futures were down 0.2% at $2,663.70.

The new president's agenda that supports higher tariffs has

boosted the dollar and created significant underlying pressure

on metal markets, said Nitesh Shah, commodity strategist at

WisdomTree.

The dollar index was set for its strongest weekly

performance since mid-November, making gold pricier for overseas

buyers.

"For most of the metals, the slowing of global trade has

typically been coupled with a slowing economy and therefore

slowing demand for metals," Shah said, referring to the

potential impact of Trump's proposed trade tariffs.

A headwind from a stronger dollar is likely to persist

for gold, but it looks like debts will continue rising in the

U.S. and other countries, and geopolitical issues aren't going

to end soon, so it should stay supported, he added.

Trump is set to take the oath of office on Jan. 20. His

proposed tariffs and protectionist policies are expected to fuel

inflation.

This could slow the U.S. Federal Reserve's interest rate

cuts, limiting gold's upside. After three rate cuts in 2024, the

Fed projects only two reductions in 2025 due to persistent

inflation.

Gold, which thrives in low-rate environments, is currently

benefiting from seasonal demand.

"January has been consistently seeing the best price gains

over the last 20 years as investors and asset allocators open

fresh new long positions, coupled, of course, with good

jewellery offtake for the festive season," independent analyst

Ross Norman said.

Spot silver rose 0.8% to $29.82 per ounce, platinum

added 1.4% to $937.65, and palladium gained 1.4%

to $924.20.