Gold heads for fourth weekly gain on bruised US dollar

Gold prices steadied on Friday and were on track for their fourth consecutive weekly gain, as broader weakness in the dollar countered pressure from an uptick in the Treasury yields and prospects of US interest rate hikes.

Spot gold held its ground at $1,789.81 per ounce, as of 0319 GMT, and has gained nearly 1 per cent so far this week. US gold futures eased 0.2 per cent to $1,804.20. "Fundamentally gold is facing conflicting factors here. On one hand, we have a weaker US dollar helping, but the other side of the equation is of course the rise in yields," said Ilya Spivak, a currency strategist at DailyFX.

The dollar was set for its third weekly loss in four, making gold less expensive for other currency holders. Data on Thursday showed US producer prices unexpectedly fell in July. It came a day after news that consumer prices (CPI) were unchanged in July due to a drop in gasoline prices. "With US inflation data now behind us, it is almost like the calm after the storm and that has led to tight ranges for currencies and commodities after a spell of volatility a couple of days ago," said Matt Simpson, senior market analyst at City Index.

San Francisco Federal Reserve Bank President Mary Daly said a 50-basis-point interest rate hike in September "makes sense", given the recent economic data including on inflation, but that she is open to a bigger rate hike if data warrants. Fed funds futures traders are now pricing in a 61.5 per cent chance of a 50-basis-point hike in September and a 38.5 per cent chance of a 75-basis-point increase.

Gold is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion. Weighing on gold by increasing the opportunity cost, benchmark US 10-year Treasury yields hovered near a three-week peak. Spot silver eased 0.2 per cent to $20.34 per ounce, platinum fell 0.1 per cent to $955.16, and palladium slipped 0.6 per cent to $2,262.53.