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NEW YORK/LONDON (Reuters) - Gold ended nearly flat in thin trade on Friday, logging declines for two of the past three weeks as investors took to the sidelines ahead of a key U.S. option expiration and a Federal Reserve policy meeting next week.
The metal, which has tended to follow riskier assets, inched down despite the usually bullish factors of a weaker dollar, an oil rally and gains in U.S. equities on better-than-expected corporate results.
Options traders said that gold prices could gravitate toward the $1,650 strike price for call options ahead of next week's COMEX options expiry, dealers said.
U.S. gold futures' open interest, a liquidity gauge measuring the number of contracts outstanding, fell below the 400,000 lot for the first time this week, while Friday's volume was on track to be one of the weakest this year.
"We not only lost open interest but also volume, and a lot of that has to do with the sustained upward move of the stock market," said George Gero, vice president of RBC Capital Markets.
Gold has lost around $150 an ounce since late February after a strong run of U.S. economic data dashed hopes of further monetary easing by the Fed.
While gold was still 5 percent higher year to date despite recent setbacks, U.S. equities measured by the S&P 500 index have risen 10 percent so far this year.
Spot gold edged down 22 cents to $1,642.26 an ounce by 2:49 p.m. EDT (1849 GMT).
U.S. gold futures for June delivery settled up $1.40 at $1,642.80.
Trading volume was below 90,000 lots at 3 p.m., preliminary Reuters data showed, set to challenge this year's low of 97,189 lots set on April 9.
Gold is also struggling for direction as buyers await the outcome of IMF/World Bank semi-annual meetings this weekend, at which plans to tackle the euro zone debt crisis will be discussed, and the Federal Reserve's April 24-25 meeting on U.S. monetary policy.
Open interest for the popular $1,650 call strike has nearly doubled over the last 30 days despite dwindling volume in futures, dealers said.
"There are over 12,000 lots (1.2 million ounces) of open interest on the COMEX expiry next Wednesday for the $1,650 strike," TD Securities precious metals analysts said in a note.
"This is clearly starting to draw market interest and will likely mean the price does not deviate significantly away until expiry," the note said.
Appetite for physical gold in India, historically the world's top bullion consumer, has been lackluster ahead of the gold-buying festival of Akshaya Tritiya on Tuesday next week, as high prices and rupee weakness curbed interest in the metal.
Silver was down 0.2 percent at $31.65 an ounce, while spot platinum edged up 0.1 percent to $1,576.24 an ounce and palladium rose 1.9 percent to $672.22 an ounce.
Editing by Dale Hudson