PRECIOUS-Gold hits three-week peak on softer dollar and safe-haven inflows

* Bullion up about 1.4% this week * U.S. central bank projects two rate reductions in 2025 * Dollar down 0.4% against rivals * UBS keeps silver prices target at $36/oz-$38/oz for 2025 (Updates with mid-session trading) By Anushree Mukherjee Jan 3 (Reuters) - Gold prices touched their highest in three weeks on Friday, supported by a softer dollar and safe-haven buying, while markets braced for potential economic and interest rate changes from U.S. President-elect Donald Trump's proposed policies. Spot gold XAU= was little changed at $2,657.18 an ounce at 1250 GMT, having earlier hit its highest since Dec. 13 at $2,665.10. Bullion is up about 1.4% for the week so far. U.S. gold futures GCcv1 were steady at $2,671.20. The dollar index .DXY fell 0.4% from a two-year high hit in the previous session, making dollar-priced bullion more affordable for holders of other currencies. USD/ "Gold bulls are setting the tone early doors this year, enjoying the lift from safe-haven bids while riskier equities struggle to hold on to nascent gains," said Exinity Group Chief Market Analyst Han Tan. MKTS/GLOB On the geopolitical front, in Gaza Israeli airstrikes killed at least 68 Palestinians, Gaza authorities said. Elsewhere Russia launched a drone strike on the Ukrainian capital Kyiv on Wednesday, city officials said. Trump's inauguration on Jan. 20 has heightened uncertainty, with his proposed tariffs and protectionist policies expected by many economists to be inflationary and potentially spark trade wars. "Markets are aware that Trump's policies risk reawakening U.S. inflationary impulses, which should be a boon for gold so long as markets adhere to the precious metal’s role as an inflation hedge," Tan added. Bullion, which is considered a hedge against economic and geopolitical uncertainties, tends to thrive in a lower interest rate environment. After delivering three consecutive interest rate cuts in 2024, the U.S. central bank now projects only two reductions in 2025 due to stubbornly high inflation. Spot silver XAG= rose 0.7% to $29.77 per ounce. "Lower real U.S. yields and stronger global industrial production should favor the metal in 2025," UBS said in a note, adding that they see silver trading between $36-38/oz in 2025. Platinum XPT= added 1.1% to $932.95, and palladium XPD= gained 1.4% to $923.95. Both metals were on track for weekly gains. (Reporting by Anushree Mukherjee in Bengaluru; Editing by Elaine Hardcastle and Jan Harvey) (([email protected];))