* 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 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 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 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, which held near two-month highs against a basket of major currencies.
“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 was down 0.3% at $16.35 per ounce, while platinum 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 was flat $1,530.96 per ounce, but was on track to post a weekly gain after declining for two. (Reporting by K. Sathya Narayanan in Bengaluru Editing by Jonathan Oatis and Matthew Lewis)