Gold set for worst week since Nov as rate hike bets boost dollar

  • Gold down about 2.5% so far this week
  • Dollar on track for biggest weekly rise in seven months
  • Silver set for about 8% weekly decline
  • Palladium up over 12% this week

Jan 29 (Reuters) - Gold extended declines on Friday and was set for its worst week since late November as growing expectations for U.S. interest rate hikes pushed the dollar to a multi-month high, making bullion less attractive for overseas buyers.

Spot gold fell 0.6% to $1,785.71 per ounce at 14:02 ET (1902 GMT). It hit a six-week low of $1,779.20 earlier in the session, and was headed to drop about 2.5% for the week.

U.S. gold futures fell 0.5% to $1,786.60.

Gold prices slipped below its 100-day and 200-day moving averages in the last session, after the U.S. Federal Reserve reaffirmed plans to end its pandemic-era bond purchases and signalled an interest rate hike in March. read more

"The current market environment has been very detrimental for gold. Investors are completely reassessing Fed expectations," said Edward Moya, senior market analyst at brokerage OANDA.

"There's still some momentum selling in gold, but we're getting closer to a potential bottom now that it has broken past $1,800."

Rising rates increase the opportunity cost of holding non-yielding bullion.

The rate hike expectations set the dollar on track for its biggest weekly rise in seven months, making gold more expensive for holders of other currencies.

However, gold's credentials as an inflation hedge is likely to attract renewed attention with rising stock market volatility amid a market adjusting to a rising interest rate environment, Saxo Bank analyst Ole Hansen wrote in a note.

The World Gold Council (WGC) forecast that demand for jewellery, small bars and coins would remain strong in 2022 could limit bullion's decline. WGC also expects central banks to continue buying gold but at a slower pace.

Spot silver dropped 1.8% to $22.33 an ounce, and was set to fall about 8% for the week.

Platinum fell 1.8% to $1,004.46, while palladium rose 0.1% to $2,378.68, logging a weekly gain of about 12.7%.

Reporting by Kavya Guduru in Bengaluru; Editing by Devika Syamnath and Vinay Dwivedi

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