Gold set for biggest weekly drop since Feb on hawkish Fed

Gold prices were en route to their worst week since early February on Friday as the dollar strengthened after US Federal Reserve Chief Jerome Powell reiterated that more interest rate hikes were in the offing.

Spot gold was up 0.3% at $1,919.06 per ounce by 1130 GMT, yet stayed close to a three-month low hit earlier in the session. Prices are down 1.9% for the week.

US gold futures gained 0.3% to $1,929.20.

"Gold is clearly an asset in demand and but taking a short-term view on where the price is today, we still think there's a little bit room for gold to underperform," said Edward Gardner, commodities economist at Capital Economics.

The dollar was up 0.6% and bound for its first weekly rise in four, making bullion more expensive for holders of other currencies.

Powell, in his second day of testimony, said the Fed would continue to raise interest rates at a "careful pace."

The market now sees a 3-in-4 chance of a 25-basis-point rate hike in July, with cuts seen only 2024 onwards.

"While we do not see the need for further rate increases, we do not expect an increase in gold and silver investment demand either, due to the resilience of the US economy and the high levels of interest rates, which are offering other alternatives to safe-haven seekers," said Carsten Menke, Head Next Generation Research, Julius Baer.

Interest rate hikes raise the opportunity cost of holding non-yielding bullion.

Spot silver rose 0.6% to $22.38 per ounce, but was set for its biggest weekly drop since October 2022. Platinum was up 0.3% to $925.57, also on course for its worst week since September 2022.

The strength of the dollar and concerns about China's industrial sector and economy as a whole have contributed to silver's decline, said Gardner.

Palladium rose 0.6% to $1,291.43 after hitting its lowest since May 2019 on Thursday.