PRECIOUS-Gold firms, but on track for weekly loss as inflation fears temper safe-haven demand

By Pablo Sinha

March 6 (Reuters) - Gold edged up on Friday on safe-haven demand as Middle East tensions escalated, but was headed for a weekly decline, as inflation worries dimmed rate-cut expectations.

Spot gold XAU= was up 0.3% at $5,090.16 per ounce, as of 11:37 GMT. It was down 3.5% so far this week, snapping a four-week winning streak, as fading prospects of interest rate cuts and a volatile dollar weighed on bullion.

U.S. gold futures GCcv1 for April delivery rose 0.4% at $5,099.50.

"Geopolitical risk remains a key factor supporting prices as hopes of a swift resolution in Iran do not appear forthcoming right now. However, upside potential is being capped by inflationary fears due to rising oil prices, (which have) strengthened the 'higher-for-longer' narrative regarding U.S. interest rates," said Zain Vawda, analyst at MarketPulse by OANDA.

While gold is considered a long-term hedge against inflation, it tends to do well in low-interest rate environments, as it is a non-yielding asset. The metal has risen over 18% so far this year.

Israel carried out heavy air strikes on Hezbollah-controlled southern suburbs of Beirut and started a "broad-scale" wave of attacks against infrastructure in Tehran on Friday, while Iran said it targeted the heart of Tel Aviv with missiles.

Crude prices headed for the sharpest weekly gain since Russia launched its full-scale invasion of Ukraine in February 2022. O/R

The dollar slid around 0.1%, making greenback-priced bullion more affordable for holders of other currencies, but was headed for its sharpest weekly gain in more than a year.

Meanwhile, U.S. Federal Reserve policymakers will meet on March 18, where they are widely expected to hold interest rates steady, according to CME Group's FedWatch tool.

Investors are looking out for the U.S. employment report for February, due later today, which is expected to show that nonfarm payrolls likely rose by 59,000 jobs last month, according to a Reuters survey of economists.

Demand for physical gold eased in India this week as volatile prices deterred buyers, while premiums in China held firm on a pickup in investment demand.

Spot silver XAG= rose nearly 1% to $82.95 per ounce. Spot platinum XPT= added 0.8% to $2,139.10, while palladium XPD= gained 0.4% to $1,635.75. All metals were headed for weekly losses.