Gold heads for worst week in 2 months as dollar rises

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

Spot gold had fallen 1.3% to $1,643.90 per ounce, down about 2.9% so far this week. U.S. gold futures settled 1.6% lower at $1,649.50.

The U.S. 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 $1,600 an ounce, said Daniel Ghali, commodity strategist at TD Securities.

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 in nearly two months.

Gold is highly sensitive to rising U.S. 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 U.S. 10-year Treasury yields firmed, further weighing on gold.

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

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