PRECIOUS-Gold rises as dollar retreats after Fed downplays inflation fears

* Palladium heads for second straight weekly decline

* Gold eyes second straight weekly gain (Adds comments, details, and updates prices)

May 14 (Reuters) – Gold prices edged higher on Friday, as the U.S. dollar pulled back from one-week highs after U.S. Federal Reserve officials downplayed an imminent rise in interest rates despite a sharp rise in inflation.

Spot gold was up 0.5% at $1,835 per ounce by 0921 GMT. The metal gained has 0.3% this week. U.S. gold futures rose 0.6% to $1,835.30.

The dollar index was down 0.3% against its rivals, making gold cheaper for other holders of other currencies.

“The Fed is not going to throw the economic recovery off course by raising rates,” StoneX analyst Rhona O’Connell said.

“We have got global issues, and particularly with uncertainties over places like Brazil and India… the Indian variant (of coronavirus) seems to be getting out internationally now.”

India’s tally of coronavirus infections climbed past 24 million on Friday, amid reports that the highly transmissible variant was spreading across the globe.

“There’s too much risk involved to start either aggressive tapering or raising rates because there is not enough underlying strength in the economy,” O’Connell said.

Key U.S. economic readings this week showed a bigger-than-expected rise in consumer prices and weekly jobless claims dropping to a 14-month low, intensifying concerns over rising inflation and prospects of a rise in interest rates.

Federal Reserve officials have repeatedly maintained they expect any rise in inflation to be short-lived.

Fed Governor Christopher Waller on Thursday said he expects inflation to exceed the central bank’s target of 2% for the next two years, but the Fed would not move to raise rates until inflation is above target for a long time, or excessively high.

Richmond Fed President Thomas Barkin also downplayed the likelihood of a long-term jump in inflation.

Elsewhere, palladium gained 1.6% at $2,909 per ounce. Silver rose 0.5% to $27.20 and platinum was up 1.8% at $1,226.

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