Gold rises but heads for weekly loss amid fears of US rate hike

Gold prices rose slightly on Friday, recovering from their lowest level in a year recorded in the previous session, but are on track to incur weekly losses as rising oil prices fueled inflation concerns and bolstered expectations that U.S. interest rates will remain higher for longer.

By 00:32 GMT, spot gold prices rose 0.2 percent to $3,883.05 per ounce, after falling 3 percent on Thursday. Gold has lost 4.4 percent since the start of the week.

U.S. President Donald Trump said on Thursday that the United States does not need an agreement with Iran, dimming hopes for a quick resolution to the Middle East conflict.

Beth Hammack, president of the Federal Reserve Bank of Cleveland, said she believes the U.S. central bank does not need to pursue more aggressive interest rate hikes to combat high inflation.

Mary Daly, president of the Federal Reserve Bank of San Francisco, said the Federal Reserve will likely need to continue monetary tightening to address high inflation, without indicating that urgency is necessary.

According to the CME Group’s FedWatch tool, markets see an 85 percent probability of a 25-basis-point interest rate hike in December, while the likelihood of a larger 50-basis-point increase stands at 14.5 percent.

Although gold is typically viewed as a hedge against inflation, higher interest rates increase the opportunity cost of holding the non-yielding metal, reducing its appeal to investors.

The number of Americans filing new claims for unemployment benefits rose more than expected last week, but remained at a level consistent with a stable labor market, allowing the Federal Reserve to focus on fighting inflation.

In other precious metals, spot silver prices rose 0.1 percent to $50.07 per ounce, platinum increased 0.3 percent to $1,523.55, and palladium rose 0.3 percent to $996.84. However, all three metals are on track to record weekly losses.