Gold Set for Weekly Loss as Dollar Strengthens and Fed Signals Higher Rates

Gold prices edged lower on Friday and were on track for a weekly decline, weighed down by a strengthening dollar and mounting expectations that the US Federal Reserve will keep interest rates elevated for longer to bring inflation under control.

Spot gold slipped 0.2% to $4,270.40 per ounce in early Asian trade and has shed more than 2% over the week. US gold futures, by contrast, nudged 0.2% higher to $4,304.80.

The dollar was headed for a weekly gain, which makes greenback-priced metals costlier for holders of other currencies and dampens demand.

Rate expectations have also shifted after two Fed policymakers said the central bank will likely need to raise rates again to curb what they described as unacceptably high inflation. The remarks came a week after the Fed lifted its benchmark rate by a quarter of a percentage point.

Philadelphia Fed President Anna Paulson said returning inflation to 2% is a top priority and that she would support the policy path that achieves it while weighing risks to the labour market. Separately, New York Fed President John Williams, speaking in London, also indicated that tighter monetary policy lies ahead.

Gold is traditionally viewed as a hedge against inflation, but higher rates tend to curb its appeal by boosting the attractiveness of yield-bearing assets.

On the economic data front, new claims for US unemployment benefits hovered near 57-year lows last week, suggesting the labour market had regained momentum after a soft summer and was so far absorbing the fallout from the Middle East conflict.

In other developments, US and Iranian negotiators in New York are exploring a phased path out of the war that would involve Tehran reopening the Strait of Hormuz and Washington lifting its economic blockade of Iran, sources close to the talks said.

Among other precious metals, spot silver fell 0.5% to $63.58, platinum held steady at $1,749.61 and palladium dropped 1.3% to $1,257.70.

Markets are now awaiting US durable goods data for August and the final September reading of the University of Michigan sentiment survey, along with Japanese chain store sales figures.