NEW YORK, Sept 20 (Reuters) - COMEX gold prices responded more to the three-month highs hit by the dollar on Friday than to the latest rehash of news about a potential U.S. war with Iraq, but traders said a background fear factor was probably keeping a bid tone under the modest declines in gold prices.
From Washington, U.S. President George Bush attempted to coax Moscow into joining his campaign against Iraqi President Saddam Hussein, while Russia wants to give Saddam another chance to allow U.N. inspectors to search for weapons in Iraq.
"The only thing (about Iraq) that would be a factor (for gold today) is that people might have fear going home short over the weekend. So, it's giving the gold price a little strength at a time when weakness is called for with the stronger dollar," said one COMEX floor broker.
COMEX December gold slipped $0.30 to $323.60 an ounce, trading from $321.60 to $324.80, just short of the seven-week high at $325.50 hit on Sept 9.
Spot gold at $322.0/2.50, nearly unchanged from $322/3.0 at Thursday's close. London bullion dealers fixed the Friday rate at $321.55 an ounce.
The dollar broke to new three-month highs against the yen on Friday, and challenged the euro as well. More aggressive dollar levels make gold more expensive to overseas buyers, and hampers the yellow metal's attempt to rise.
But, the Iraqi fear factor in the background provided gold with a stronger footing that would otherwise be warranted with a firm dollar.
"Right now the gold price continues to be firm going into the weekend. So, fear of being short over the weekend is about the only reason to be stronger right now," said a gold trader.
Despite the narrow trading range for gold, a broker said, "There is good customer business at these levels, even though we are just dancing back and forth (in a range)."
December silver rose 1.5 cents to $4.675 an ounce, and traded between $4.625-$4.69. Spot silver stood even in Friday's morning session with $4.64/66 late Thursday. London's fix was lower at $4.62 an ounce.
Platinum group metals trade was exceptionally thin, with many New York players attending annual Platinum Week events.
NYMEX October platinum fell $0.20 to $566 an ounce. Spot platinum was quoted late at $564/569 an ounce.
Early in the session, December palladium was bid down $1.50 to $332 an ounce. Spot palladium moved up to $331/336 an ounce.