* Dollar heads for worst week in a month
* Silver on track for 2nd straight weekly gain
* Interactive graphic tracking global spread of coronavirus: open https://tmsnrt.rs/3aIRuz7 in an external browser (Updates prices)
By K. Sathya Narayanan
Aug 28 (Reuters) - Gold rebounded over 2% on Friday, a day after a steep sell-off, as the U.S. dollar weakened and the U.S. Federal Reserve signaled a prolonged low interest rate strategy.
Spot gold XAU= rose 1.8% to $1,964.47 per ounce by 02:25 p.m. EDT (1825 GMT), taking gains this week to about 1.3%. Prices fell as much as 2.2% on Thursday after U.S. Treasury yields gained following a speech by Fed Chair Jerome Powell on the strategy.
U.S. gold futures GCv1 settled up 2.2% at 1,974.90.
"The sizeable sell-off in the greenback has propped up gold," said David Madden, market analyst at CMC Markets UK.
"The Fed said it can allow inflation to run above its 2% target for some time seems like they are going to keep their monetary policy extremely loose, which should help gold."
The dollar .DXY fell to an more-than one-week low, making gold cheaper for holders of other currencies, and was on track to post its biggest weekly percentage fall since end-July. USD/
Powell said on Thursday the central bank would adopt an average inflation target, meaning rates are likely to stay low even if inflation rises a bit in the future. the other hand, global central banks and governments have pumped massive stimulus into the market to prop up their coronavirus-damaged economies, helping gold gain over 28% this year.
"The shift in Fed policy will mostly likely reignite 'the inflation trade,' which has historically been bullish for hard assets (like gold)," Kitco Metals senior analyst Jim Wyckoff said in a note.
Low interest rates tend to support gold, which is also a hedge against inflation and currency depreciation.
Silver XAG= rose 1.6% to $27.48 per ounce, on track for a second consecutive weekly rise.
Platinum XPT= eased 0.1% to $927.83, while palladium XPD= rose 2.4% to $2,211.96.
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