PRECIOUS-Gold set for 5th week of gains, palladium hits record

    * Automotive sector demand, tight supplies boost palladium
    * Silver heading for first weekly drop in 5 weeks
    * Platinum hits four-month high, tests $1,000
    * Palladium hits record high of $1,117.50

 (New throughout, updates prices, market activity and comments,
adds palladium record; adds second byline and NEW YORK dateline)
    By Renita D. Young and Zandi Shabalala
    NEW YORK/LONDON, Jan 12 (Reuters) - Gold hit a four-month
high on Friday and was on track for a fifth straight weekly gain
as the U.S. dollar fell against the euro on an agreement for a
political coalition in Germany. 
    Palladium hit a record high in a continued rally fueled by
tight supplies and increased demand in the automotive industry
for autocatalysts in gasoline-burning vehicles.
    Spot gold        was up 1.2 percent at $1,338.39 an ounce by
2:19 p.m. EST (1919 GMT). The session high of $1,339.31 was its
highest since September. Bullion is up 1.4 percent this week and
set for its longest run of weekly gains since April. 
    U.S. gold futures         for February delivery settled up
$12.40, or 0.9 percent, at $1,334.90 per ounce. 
    Palladium        rose 3.4 percent to $1,120.24 per ounce and
was up 2.8 percent for the week. During the session it hit a
record high of $1,126.30.
    Gold prices extended their rally after U.S. President Donald
Trump said he would waive nuclear sanctions against Iran for the
last time to give Washington and its European allies a chance to
fix the "terrible flaws" of the 2015 nuclear deal. "This is a
last chance," Trump said in a statement, which fed investor
worries and boosted safe-haven demand for gold.              
    "Certainly, Trump making that announcement helped, and it's
been a risk-on move today," said Dan Hussey, senior market
strategist at RJO Futures in Chicago.
    The dollar index       , fell against a basket of currencies
to its lowest since Sept. 8.
    The euro jumped to a three-year high after party sources
said German Chancellor Angela Merkel's conservatives and the
Social Democrats (SPD) had agreed a blueprint for formal
coalition negotiations.             
   "The agreement is one of the first movements in a long time
that people say is EU-positive. Hence the strength in the euro
and gold, as well," Hussey added.
    A stronger euro makes dollar-priced bullion cheaper for
European investors.
    The U.S. dollar saw some pressure from falling producer
prices in the United States in December, as underlying U.S.
consumer prices recorded their largest increase in 11 months.
    Both U.S. data reports tempered inflation worries.
    Palladium has seen a sustained rally from high demand in the
auto industry and a supply deficit, a New York-based trader
    "It's spiking, but platinum is starting to follow it
higher," he added.
    Platinum        rose 1.1 percent at $994.90 an ounce after
touching its highest since Sept. 11 at $998.50, on track for a
fifth straight weekly gain. Platinum is up 2.6 percent so far
this week.
    Spot silver        rose 1.4 percent at $17.20 an ounce but
was still heading for its first weekly loss in five weeks, down
0.1 percent for the week.

 (Additional reporting by Nallur Sethuraman in Bengaluru;
Editing by David Gregorio and David Goodman)