Gold heads for weekly decline as dollar firms, Fed rate outlook weighs

Gold prices dipped on Friday, heading for a weekly decline, as a stronger dollar and the prospect of the US Federal Reserve maintaining higher interest rates longer to fight inflation weighed on the precious metal. Spot gold fell 0.2% to $4,270.40 per ounce, marking its worst weekly performance in over a month. US gold futures also slipped 0.2% to $4,304.80.

The US dollar is projected to gain ground this week, making foreign-currency denominated metals more costly for holders of other currencies. The U.S. Federal Reserve may need to further increase interest rates to bring inflation back down to its 2% target, according to two Fed policymakers. Fed Chair Jerome Powell reiterated this sentiment in a recent press conference, emphasizing the need to tackle inflation while monitoring its impact on employment.

Gold has historically been perceived as an inflation hedge, but higher interest rates can diminish its allure by making yield-bearing assets more attractive. Data released last week indicated that new claims for U.S. unemployment benefits were near their 57-year lows, signaling a robust labor market despite the challenges posed by geopolitical tensions in the Middle East.

Meanwhile, silver slipped 0.5% to $63.58, platinum remained steady at $1,749.61, and palladium declined 1.3% to $1,257.70. In other news, U.S. and Iranian negotiators are in New York to discuss a phased de-escalation of the ongoing conflict, which could include Tehran lifting the Strait of Hormuz blockade and Washington removing economic sanctions against Iran.