* Gold set for biggest weekly drop in nine weeks
* Silver is week’s worst-performing precious metal (Updates prices)
By Jan Harvey
LONDON, Oct 30 (Reuters) - The price of gold steadied on Friday as a retreat in the dollar helped it snap two days of losses, but prices remained near three-week lows after the U.S. Federal Reserve indicated that it might still raise interest rates this year.
The price was also on track for its biggest weekly drop in nine weeks, down 1.4 percent, after the Fed indicated after its two-day policy meeting this week that a December rate rise is still a possibility.
Rising interest rates tend to weigh on gold because they lift the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.
Spot gold was at $1,145.55 an ounce by 1220 GMT, little changed from $1,145.51 late on Thursday, after slipping to its lowest since Oct. 9 at $1,144.01 earlier. U.S. gold for December delivery was down $2.30 at $1,145.00.
“The market was clearly anticipating kicking rate rises into the long grass, and of course a December rate rise is still very much on the cards,” Mitsubishi analyst Jonathan Butler said.
“The correction was a perfectly natural response to that. (But) it’s interesting that we’ve only traced back to where we were in early October. There may be further pain to come as the Fed’s intentions becomes clearer, but with yields having moved higher, probably the worst is over in the very short term.”
Gold took some support from a 0.3 percent drop in the dollar against a basket of currencies, with the yen strengthening after the Bank of Japan made no move on monetary policy, disappointing some speculators who had bet that the central bank would expand its huge stimulus programme.
Expectations that the Fed may raise rates while other central banks loosen monetary policy is still likely to support the dollar in the longer term, however, weighing on gold.
“The reality of tightening U.S. monetary policy is still set to strengthen the U.S. dollar and see Treasury yields rise,” Societe Generale analysts said in a note. “Against this backdrop we still expect both gold and silver to drop markedly.”
Silver prices are on track for the biggest fall of the main precious metals this week, down 1.5 percent. Silver was down 0.1 percent at $15.55 an ounce on Friday.
As silver underperformed, the gold-silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose back to 73.8 on Friday, recovering further from the four-month low of 71.3 hit earlier this month.
Spot platinum was down 0.2 percent at $987.99 an ounce, while palladium was up 0.7 percent at $672.75. (Additional reporting by A. Ananthalakshmi in Singapore; Editing by David Goodman, Greg Mahlich)