Gold gains, set for weekly rise as U.S. yields drop

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  • Gold headed for fourth straight weekly gain
  • U.S. Treasury yields dip

Aug 12 (Reuters) - Gold prices drifted higher on Friday helped by a drop in U.S. Treasury yields and setting the metal on path for a fourth straight week of gains, as investors took stock of the recent inflation data out of the United States.

Spot gold rose 0.5% to $1,798.86 per ounce by 1800 GMT and was headed for a more than 1% weekly rise. U.S. gold futures also settled up 0.5% at $1,815.5.

"Currently the gold market is seeing some short-covering and is supported by lower yields," said Bart Melek, head of commodity strategy at TD Securities.

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U.S. Treasury yields dipped after a volatile week as investors evaluated whether an apparent slowdown in inflation increases could reduce the speed of Federal Reserve interest rate hikes.

Data released earlier this week indicated that inflation in the U.S. has cooled down, following which market participants toned down expectations of an aggressive rate hike by the Fed.

However, recent Fed commentary continues to be hawkish and have stopped the metal from breaking above the $1,800 level.

"Gold's rally, after cooler CPI numbers, stopped in its tracks as the market believes inflation will continue to be a problem. Fed speakers have also suggested they can't afford to relinquish the fight against inflation," Melek added.

Gold tends to do well in a low-interest environment as it yields no interest.

"Rising risk appetite as seen through surging stocks and bond yields ... have so far prevented the yellow metal from making a decisive challenge at key resistance above $1,800," Saxo Bank analyst Ole Hansen said.

Meanwhile, high domestic prices restrained physical gold demand in India this week, while uncertainty surrounding Taiwan-related developments prompted bullion importers in China to hold off on big purchases.

Spot silver rose around 2% to $20.70 per ounce, platinum was up 0.3% at $958.57, while palladium fell 1.8% to $2,235.09.

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Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Shounak Dasgupta

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