Gold falls on expectations that Fed will raise US rates to fight inflation

Gold prices were falling about 1% on Friday as markets see the U.S. Federal Reserve committed to curbing inflation, which would require higher rates for longer and put pressure on the bullion, which is heading for its biggest weekly drop in about two months.

* Spot gold was down 0.8 percent at $1,988.22 an ounce by 1022 GMT. So far this week, gold has lost 0.7%, its biggest weekly decline since late February. U.S. gold futures were down 1% at $1,999.70.

* The price of gold was moving due to the Fed’s projected path for rate hikes and hawkish comments from some of its policymakers, said Carlo Alberto De Casa, outside analyst at Kinesis Money.

* The market now expects rates to rise for longer, a further hike after May, De Casa said.

* Rate hikes raise the opportunity cost of holding gold, which does not earn interest.

* Markets are pricing in an 88% chance of a 25 basis point hike in May, pushing the dollar toward its first weekly rise in more than a month, making bullion more expensive for foreign buyers.

* Federal Reserve officials said Thursday that inflation remains “well above” the central bank’s 2% target. Fed Governor Michelle Bowman reiterated that more work needs to be done to reduce inflation that is too high.

* Next week, investors will be watching US GDP and PCE figures for more inflation data.

* In addition, the Bank of England is expected to raise rates for the twelfth consecutive time in May and the European Central Bank is expected to raise rates for the seventh consecutive time.

* Among other precious metals, spot silver was down 0.8% at $25.08 an ounce, heading for its first weekly decline in six weeks. Platinum was up 0.4% at $1,097.41, while palladium gained 0.9% to $1,601.08.

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