PRECIOUS-Cooling trade tensions set gold on track for worst week since November

By Sarah Qureshi

May 16 (Reuters) - Gold prices dropped more than 2% on Friday and were set for their worst week since November, as increased risk appetite from the U.S.-China trade agreement weighed on the market.

Spot gold XAU= fell 1.6% to $3,188.25 an ounce as of 1350 ET (17:50 GMT) and was down 4.1% so far this week. Last month, prices had reached a record high of $3,500.05 amid escalated tariff tensions.

U.S. gold futures GCcv1 settled 1.2% lower at $3,187.2.

"The thawing of the U.S.-China trade war has revived risk appetite across the broader marketplace. This shift is prompting profit-taking among futures traders, particularly in the gold market, and has triggered a week-long wave of liquidation," said Jim Wycoff, senior analyst at Kitco Metals.

Washington and Beijing earlier this week announced a 90-day pause, while they work out the details to end their tit-for-tat trade war. Later, the U.S. said that it was slashing "de minimis" fees on smaller shipments from China.

As a result, the Wall Street's three main indexes were on track for weekly gains, fueled by growing investor risk appetite after a long period of uncertainty. .N

Bullion is considered a hedge against economic and geopolitical turmoil. It also tends to do well in a low-interest-rate environment.

Meanwhile, recent slowing inflation data, combined with a weaker-than-expected economic data, in the United States cemented bets of more Federal Reserve rate cuts this year.

Markets expect the U.S. central bank to implement two rate cuts, beginning in September. FEDWATCH

Spot silver XAG= lost 1.4% to $32.22 an ounce and fell over 1% for the week.

"It seems to me that if gold resumed its bull market run, then silver has a more upside price potential too," said Wycoff.

Meanwhile, platinum XPT= dipped 0.6% to $984.10 and palladium XPD= eased 1.2% to $956.72. Both the sister metals also headed for weekly declines.