* Gold set for best quarter since Q1 2016
* Dollar on track for best week this year
* Gold to average $1,259 an ounce this year-GFMS
* Palladium up 17.7 percent this quarter
* GRAPHIC-2017 asset returns: tmsnrt.rs/2jvdmXl
(Updates prices, adds U.S. inflation data, comment)
By Peter Hobson
March 31 Gold was on track for a 8.2 percent
quarterly rise on Friday, its best quarter in a year, as
uncertainty over U.S. President Donald Trump's tax and
investment plans and a series of elections in Europe fuelled
demand for bullion as a safe haven.
Spot gold was up 0.2 percent at $1,245.56 an ounce at
1429 GMT. U.S. gold futures were 0.1 percent higher at
$1,246 an ounce.
Though well ahead on a quarterly basis, gold fell 0.7
percent on Thursday, its biggest one-day drop in more than three
weeks, after a failure to break resistance at its 200-day moving
average triggered technical selling.
It was on track to end the week up 0.2 percent.
"In the short term, factors including a strengthening dollar
could pull prices down to around $1,230 an ounce," said Yuichi
Ikemizu, head of commodity trading at Standard Bank in Tokyo.
The dollar was on course for its best week this year, helped
by better than expected U.S. economic growth data.
Data showing the largest annual increase in U.S. inflation
in nearly five years and comments by the president of the New
York Federal Reserve meanwhile reinforced expectations of U.S.
interest rate hikes this year.
A stronger dollar makes bullion more expensive for holders
of other currencies, while higher interest rates lead to higher
bond yields and dampen demand for non-yielding gold.
But gold is underpinned in the coming months by doubts over
Trump's ability to enact tax cuts and investment spending and an
uncertain political outlook in Europe.
"The fear trade has driven the market so far this year,"
said David Govett at Marex Spectron.
The buying as a haven from risk, plus a recovery in Indian
buying, are likely to push prices to an average $1,259 an ounce
this year, GFMS analysts at Thomson Reuters said in their Gold
Survey 2017, published on Friday.
A failure by Trump to make progress on his stimulus plans
would reduce the chances of a rise in U.S. interest rates in
June, Tom Kendall at ICBC Standard Bank said in a note.
"That in turn would likely give gold the impetus to break up
through $1,300 again," he said.
In other precious metals, spot silver was up 0.5
percent at $18.18 an ounce, taking its gains this quarter to
Platinum was 0.4 percent higher at $946.50 an ounce
and is up 5.2 percent this year.
Palladium was up 0.4 percent at $797.22 an ounce. The
metal used in catalytic converters that curb pollution from
vehicle exhausts has risen 17.7 percent this quarter.
(Additional reporting by Arpan Varghese in Bengaluru; Editing
by Keith Weir, Greg Mahlich)