Gold dips as higher US rates seen in Fed's inflation fight

Shafaq News/ Gold prices dropped about 1% on Friday and were headed for their biggest weekly decline in around two months with markets expecting the U.S. Federal Reserve to opt for a higher for longer interest rate stance to control inflation.

Spot gold was down 0.8% at $1,987.59 per ounce by 1150 GMT. Bullion has also lost about 0.8% so far this week, its biggest such decline since late February. U.S. gold futures fell 1% to $1,998.10.

Gold is re-pricing based on the Fed's rate-hike path ahead and hawkish comments by some board members, said Carlo Alberto De Casa, external analyst at Kinesis Money.

The market is now expecting higher rates for a longer time, with another rate hike after May, De Casa said.

Rate hikes raise the opportunity cost of holding non-interest-bearing gold.

Markets are pricing in an 84% chance of a 25-basis-point interest rate rise in May, leaving the dollar on track for its first weekly gain in over a month and making bullion expensive for overseas buyers.

Fed officials said on Thursday inflation remains "far above" the central bank's 2% target. Fed Governor Michelle Bowman reiterated that more work needs to be done to bring down too-high inflation.

Next week's GDP data and the price deflator for consumer expenditures (PCE), the Fed's preferred inflation measure, could trigger some price movement, but no clear direction is likely before the central bank's next meeting, said analysts at Commerzbank in a note.

On the physical front, elevated domestic prices muted demand for gold across Asian hubs this week, forcing dealers in India to offer discounts, with the Akshaya Tritiya festival also failing to offer much respite.

Spot silver fell 0.6% to $25.14 per ounce and is headed for its first weekly decline in six.

Platinum rose 0.5% to $1,098.83, while palladium jumped 1.1% to $1,603.51.

(Reuters)