Gold heads for worst week since mid-August as dollar firms

Gold prices on Friday fell more than 1% and face their worst week in nearly two months, dragged lower by a stronger U.S. dollar and worries over the Federal Reserve potentially continuing with big rate hikes to curb inflation.

Spot gold was down 0.8% at $1,651.89 per ounce by 10:33 a.m. EDT (1433 GMT). Prices have fallen about 2.6% so far this week. U.S. gold futures lost 1.2% to $1,657.60.

The U.S. dollar rose 0.4% against its rivals, making bullion more expensive for overseas buyers.

Gold prices are “increasingly correlated with the moves in the broad dollar, which unfortunately did not seem to be relenting,” said Daniel Ghali, commodity strategist at TD Securities.

Gold can probably retest recent lows, and head to as low as $1,600 an ounce, Ghali said.

Data on Thursday showed U.S. consumer prices increased more than expected in September, providing ammunition to the Fed to deliver another big rate hike, and consequently setting up what could be gold’s worst week since mid-August.

Gold is highly sensitive to rising U.S. rates, as these increase the opportunity cost of holding an non-interest bearing asset.

It shed as much as 1.8% on Thursday before recovering to end the session 0.4% lower as the dollar lost ground after initially spiking following the inflation report.

“A rebound of that magnitude (for gold) after that inflation report was strange to say the least,” said Craig Erlam, senior market analyst at OANDA. “Gold moving lower again today is more in line with what we learned from the data.”

Benchmark U.S. 10-year Treasury yields firmed, further weighing on zero-yield gold.

Silver fell 1.8% to $18.53 per ounce, and was also set for its biggest weekly drop since mid-August.

Platinum firmed 0.1% to $897.51 per ounce, while palladium slipped 2.4% to $2,057.19. Both remain on course for weekly declines.

(Reporting by Bharat Govind Gautam and Brijesh Patel in Bengaluru, Editing by Tomasz Janowski)