By Devika Krishna Kumar and Peter Hobson
NEW YORK/LONDON (Reuters) - Gold notched a quarterly gain of about 8.4 percent on Friday, marking its best quarter in a year, as uncertainty over U.S. President Donald Trump's tax and investment plans and elections in Europe fuelled demand for bullion as a safe haven.
Gold rebounded from early losses as the dollar turned flat after a Federal Reserve official's seemingly dovish remarks and uninspiring data on the U.S. economy tamped down the sanguine mood from earlier this week.
Spot gold (XAU=) was up 0.4 percent at $1,247.4 an ounce at 3:48 p.m EDT (1948 GMT). U.S. gold futures (GCcv1) ended the session 0.2 percent higher at $1247.30 an ounce.
Earlier in the session, gold had dropped by the most in over than three weeks. It failed to break resistance at its 200-day moving average, triggering early technical selling.
The dollar index (.DXY), which tracks the greenback against six rival currencies, was little changed from its late Thursday levels at 100.39. Backed by early-week gains, however, it is headed for its best week since mid-February. (.DXY) [FRX/]
An index of world stocks dipped on Friday as investors locked in profits, also boosting gold. [MKTS/GLOB]
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 (XAG=) was up 0.7 percent at $18.21 an ounce, taking its gains this quarter to 14.2 percent.
Platinum (XPT=) was 0.6 percent higher at $948.60 an ounce and is up about 5 percent this quarter.
Palladium (XPD=) was up 0.2 percent at $795.5 an ounce. The metal used in catalytic converters that curb pollution from vehicle exhausts has risen 17.3 percent this quarter.
(Additional reporting by Arpan Varghese in Bengaluru; Editing by Greg Mahlich and Tom Brown)