London: Gold fell more than half a per cent on Friday and was on track for its biggest weekly loss in nearly four months as speculation grew that the US Federal Reserve would press ahead with a rate increase this month.
The probability of a Fed move in March rose to nearly 80 per cent late on Thursday from 66 per cent midweek, Fed funds futures showed, after hawkish comments from New York Fed chief William Dudley and San Francisco Fed President John Williams.
Traders will be watching for any reinforcement of that message from Fed Chair Janet Yellen and Vice Chair Stanley Fischer when they speak later on Friday.
Spot gold was down 0.7 per cent at $1,226.55 (Dh4,504.75) an ounce by 1235 GMT while US gold futures for April delivery were down $5.40 at $1,227.50.
Gold prices have retreated sharply since failing to decisively break through resistance at their 200-day moving average of $1,261 this week.
“The sharp shift in expectations for the Fed to hike rates in the past few days is being priced in across markets,” said UBS analyst Joni Teves.
Gold is highly sensitive to rising US interest rates because they increase the opportunity cost of holding non-yielding bullion, while boosting the dollar in which it is priced.
The world’s largest gold-backed exchange-traded fund, SPDR Gold Shares, reported a second daily inflow on Thursday, of 1.8 tonnes, bringing the weekly rise to 4 tonnes. The dollar took a breather after two days of gains on Friday but remained supported by growing expectations that the Fed will lift interest rates when it meets on March 14-15.
“With Federal Reserve President Yellen on the wires tonight, we look to see further weakness across the precious complex should she, as expected, promote the potential for an interest-rate increase in March,” MKS precious metals trader Sam Laughlin said in a note on Friday.
“Initial support for gold sits around $1,230, while below this we look to the 100-day moving average at $1,210.”
Among other precious metals, silver was down 0.4 per cent at $17.69 after falling 3.5 per cent on Thursday, its biggest one-day drop in 11 weeks. It is set to end the week 3.4 per cent lower.
Palladium was 0.4 per cent lower at $763.90. Platinum, however, bucked the trend, recovering from the previous session’s slide to a $978.75 one-month low to trade at $985.74 an ounce, up 0.1 per cent.