Gold set for weekly dip as hawkish Fed tilt boosts dollar

Gold hurtled towards a third straight weekly drop on Friday, dampened by the dollar’s advance following fresh hawkish rhetoric from the U.S. Federal Reserve officials.

Spot gold was down 0.6% at $1,826.39 per ounce by 1302 GMT, after earlier falling to its lowest since late-December. Bullion has fallen about 2.1% so far this week.

U.S. gold futures fell 0.9% to $1,825.10.

Two Fed officials said on Thursday the U.S. central bank likely should have lifted interest rates more than it did early this month.

Taking cues from the comments, the dollar index surged to a six-week high, making bullion less attractive for overseas buyers, while bond yields also climbed. [USD/][US/]

The latest remarks, putting a 50-basis-point rate hike and more than just one other increase back on the table, is benefiting the dollar and weighing on precious metals markets, said Quantitative Commodity Research analyst Peter Fertig.

While there is potential for gold to recover, it appears limited and would depend on how much the central banks increase rates, beyond what the markets have priced in, Fertig added. Higher interest rates increase the opportunity cost of holding zero-yield bullion.

“It’s the resilience of the economy and persistent inflation (that’s) shifting the stance of the Fed towards greater hawkishness,” in turn pulling investors away from gold, said ActivTrades senior analyst Ricardo Evangelista.

Traders now await next week’s release of the latest FOMC minutes and U.S. GDP data for more clues on rate hikes.

On the physical front, however, Czech central bank chief wants to boost the country’s gold reserves to 100 tonnes, he told a daily.

While gold demand from top consumer China could prove robust, analysts at Commerzbank see potential setbacks in the short term on higher Fed rates, lowering their mid-year gold price to $1,800/oz from $1,8500/oz. [GOL/AS]

Spot silver fell 1.1% to $21.3648 per ounce, platinum was also down similarly at $910.19 while palladium dipped 2.8% to $1,468.62.

(Reporting by Arundhati Sarkar and additional reporting by Seher Dareen in Bengaluru; Editing by Sherry Jacob-Phillips)