Gold faces third weekly drop on Fed rate-hike bets

Several Fed officials this week echoed that the monetary policy needed to remain tight to bring inflation down to the central bank's 2% target

Gold prices dipped on Friday and were set for a third straight weekly drop as investors fretted about more rate hikes by the US Federal Reserve after a slew of strong economic data.

Spot gold was down 0.5 per cent at $1,828.49 per ounce, as of 0333 GMT. Bullion has fallen 1.9 per cent so far this week. US gold futures slipped 0.8 per cent to $1,837.70.

Gold is considered an inflation hedge, but higher interest rates increase the opportunity cost of holding non-yielding bullion.

This week's data showing stronger US retail sales and high consumer prices "seems to be fuelling a reassessment... markets think the Fed will go into a more hawkish setting, and that is very bad for gold," said Ilya Spivak, head of global macro at Tastylive.

Real interest rates have rebounded against this backdrop, so non-yielding gold has been down, Spivak said.

Several Fed officials this week echoed that the monetary policy needed to remain tight to bring inflation down to the central bank's 2 per cent target.

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

Data on Thursday showed US monthly producer prices rebounded 0.7 per cent last month. Meanwhile, the number of Americans filing new claims for unemployment benefits slipped to 194,000 for the latest week.

Money markets now expect benchmark rates to rise above 5 per cent by May and stay at those levels through the year.

The dollar index surged to a six-week high. Gold competes with the dollar as a safe store of value, and gains in the currency make bullion less attractive for overseas buyers.

Benchmark 10-year Treasury yields hit their highest since late December.

Spot silver lost 0.5 per cent to $21.50 per ounce, platinum edged 0.2 per cent lower to $918.43 and palladium shed 1.1 per cent to $1,494.65.