* Gold, silver, palladium set for first weekly drop in six
* Platinum on track for sixth weekly gain
* Analysts cautious on gold as dollar weakness seen overdone
(Updates prices; adds comment and NEW YORK to dateline)
By Renita D. Young and Maytaal Angel
NEW YORK/LONDON, Jan 19 (Reuters) - Gold prices rose
slightly on Friday as the U.S. dollar hovered near a three-year
low on heightened fears of a U.S. government shutdown, but the
precious metal was still on track for its first weekly drop in
six weeks.
The U.S. dollar fell versus a basket of currencies as the
U.S. Senate raced to avert a government shutdown on Friday ahead
of a midnight deadline with no agreement on funding in sight. A
weak dollar makes dollar-priced gold cheaper for non-U.S.
investors.
Spot gold was up 0.5 percent at $1,334.58 per ounce
at 2:06 p.m. EST (1906 GMT), on track for a weekly drop of 0.3
percent, after falling from Monday's four-month highs.
U.S. gold futures for February delivery settled up
$5.90, or 0.4 percent, at $1,333.10 per ounce.
"Gold is shaking off an upside bounce to the dollar and
looking at the possibility of a government shutdown, said Bob
Haberkorn, senior market strategist at RJO Futures in Chicago.
Market participants are also hedging against geopolitical
risks of North Korea canceling its planned delegation visit to
South Korea to prepare for a trip by an art troupe during next
month's Winter Olympics, Haberkorn added.
However, gold's gains were capped by a week-long rise in
bond yields fueled by expectations that strong global economic
data would encourage the U.S. Federal Reserve to press ahead
with monetary tightening.
Expectations of rising interest rates tend to lift bond
yields, reducing the appeal of holding non-yielding bullion
while boosting the dollar, in which gold is priced.
The Fed should raise interest rates three to four times in
both 2018 and 2019, Cleveland Fed President Loretta Mester said
on Thursday, a pace slightly faster than many of her fellow
policymakers prefer.
"The fundamentals remain the same with the large trading
range remaining intact at $1,200 to $1,400, with no major change
in global political tensions or rate hike outlook," said Mark
To, head of research at Hong Kong's Wing Fung Financial Group.
Spot gold is still targeting $1,311 per ounce, as suggested
by a small double-top and a Fibonacci retracement analysis,
according to Reuters technical analyst Wang Tao.
Silver advanced 0.6 percent to $17.03 per ounce,
while palladium gained 0.5 percent at $1,104, but both
metals, like gold, were set for their first weekly drop in six
weeks.
Platinum was up 1.3 percent at $1,013.40 per ounce
after peaking at $1,015.20, the highest since September, on
track for its sixth weekly gain.
(Additional reporting by Nallur Sethuraman in Bengaluru;
Editing by Jane Merriman and Richard Chang)