* Gold down 2.2% so far this week
* Platinum set for first weekly gain in four
* Strong auto sales bode well for PGM demand - ANZ
May 19 (Reuters) - Gold prices rose on Friday, helped by a slight retreat in the dollar, but were set for their biggest weekly drop in 3-1/2 months as hopes about U.S. debt-ceiling negotiations weighed on the safe-haven metal.
Spot gold rose 0.4% to $1,964.99 per ounce by 0701 GMT. However, the metal was on track for a 2.2% weekly drop - its biggest since early February.
U.S. gold futures were up 0.4% at $1,967.90 per ounce.
The dollar index eased from a near two-month high, making gold less expensive for buyers holding other currencies.
The overall outlook for gold still remains bearish and prices are expected to remain volatile amid the debt-ceiling issue and U.S. Federal Reserve members pushing back rate-cut expectations, said Jigar Trivedi, a senior analyst at Reliance Securities.
Upcoming data points and events, including minutes of the Fed's last policy meeting, will drive the market, Trivedi said.
U.S. President Joe Biden and House of Representatives Speaker Kevin McCarthy hope to finalize a deal on the debt ceiling after Biden returns from the Group of Seven meeting in Japan on Sunday.
Investors also await Fed Chair Jerome Powell's speech at a conference later in the day for policy signals.
If Powell hints at higher-for-longer rates than the market thinks, that will be negative for gold again, said Ilya Spivak, head of global macro at Tastylive.
Markets are currently pricing in a 63.3% chance of the U.S. central bank holding rates at the current level in June, according to the CME FedWatch tool.
Spot silver rose 0.8% to $23.69 per ounce, platinum gained 0.8% to $1,057.83, and palladium jumped 2.2% to $1,484.39.
Investors are increasing their bullish bets on platinum, with strong auto sales also boding well for platinum group metals (PGM), ANZ said in a note. (Reporting by Arundhati Sarkar in Bengaluru; Editing by Sherry Jacob-Phillips, Sohini Goswami and Subhranshu Sahu)
