PRECIOUS-Gold gains on Middle East tensions; palladium hits record high

* Palladium in short supply, touches $1,649.09/oz

* Silver on track for first weekly rise in three

* Gold up 0.8% this week (Updates prices)

Sept 20 (Reuters) - Gold edged higher on Friday, heading for its first weekly rise in four, as investors focused on Middle East tensions while palladium hit a record peak on short supply.

Spot gold was up 0.1% at $1,500.47 an ounce at 1314 GMT, up about 0.8% over the week.

U.S. gold futures were steady at $1,506.70.

“The jittery situation in the Middle East is one of the reasons to be concerned and switch to safe havens after disappointing knee-jerk reaction following the U.S. Federal Reserve rate cut,” said Commerzbank analyst Eugen Weinberg.

Adding to gold’s appeal, the United States said it was building a coalition to deter Iranian threats after last weekend’s attack on Saudi Arabian oil facilities.

Another supportive factor was the Fed’s second interest rate cut this year, though the central bank gave mixed signals on future cuts.

“(The) Global outlook still looks quite unfavourable and central banks around the globe will continue to ease monetary policy, which will be beneficial for gold,” said FXTM analyst Lukman Otunuga.

Lower interest rates reduce the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies.

However, a slight dent to gold’s appeal came from a firmer dollar, which on Friday rose 0.2% against a basket of major currencies.

Markets also focused on U.S.-China trade talks in Washington before high-level discussions next month. U.S. and Chinese deputy trade negotiators resumed face-to-face talks for the first time in nearly two months on Thursday.

“Given potential upside catalysts (for gold) in the coming months, such as a dovish Fed and trade uncertainty, there is a risk that investors once again get left behind,” UBS analysts said in a note.

“Indicators suggest that market participants have reduced longs and are focusing on the $1,480 support area all the way down to $1,450 as attractive levels to re-engage.”

Meanwhile, palladium jumped 1.2% to $1,643.31 an ounce, having touched a record $1,649.09. The auto-catalyst metal, which is in short supply, was up 2.3% over the week and on track for a seventh straight weekly gain.

“What we’re seeing is continuing purchases in palladium not only by speculators but also car producers. Consumers are becoming concerned about rising prices and would rather be buying it now than later,” said Commerzbank’s Weinberg.

Silver firmed by 0.1% to $17.78 an ounce, up 2% for the week and heading for a first weekly gain in three, while platinum rose 0.3% to $939.55. (Reporting by Brijesh Patel in Bengaluru Editing by Elaine Hardcastle and David Goodman)