Gold heads for worst week in 2 months as dollar rises

Oct 14 (Reuters) – Gold prices fell more than 1% on Friday and were headed for their worst week since mid-August, dragged lower by a stronger US dollar and worries the Federal Reserve will persist with sharp rate hikes to curb inflation.

Spot gold had fallen 1.3% to USD 1,643.90 per ounce by 13:42 p.m. EDT (1742 GMT), down about 2.9% so far this week. US gold futures settled 1.6% lower at USD 1,649.50.

The US dollar rose over 0.6% against its rivals, making greenback-priced bullion more expensive for overseas buyers.

Gold prices are increasingly correlated with the moves in the dollar and could fall to as low as USD 1,600 an ounce, said Daniel Ghali, commodity strategist at TD Securities.

Data on Thursday showed US 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 in nearly two months.

Gold is highly sensitive to rising US rates, which boost bond yields, increasing the opportunity cost of holding non-yielding gold.

Bullion 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 US 10-year Treasury yields firmed, further weighing on gold.

Silver fell 3.5% to USD 18.22 per ounce, and was set for its biggest weekly drop since September 2020.

Platinum dipped 0.3% to USD 893.99 per ounce, while palladium fell 4.9% to USD 2,003.38. Both remain on course for weekly declines.

(Reporting by Bharat Govind Gautam and Brijesh Patel in Bengaluru; Editing by Tomasz Janowski and Vinay Dwivedi)