Gold set for third weekly fall on firm dollar, hawkish Fed

Synopsis

Gold prices saw a slight increase on Friday but are set for a third weekly drop. A strong dollar and the U.S. Federal Reserve's stance on interest rates are impacting gold. Meanwhile, oil prices remain high following attacks in the Middle East. These events are creating inflationary pressures, though high interest rates are dampening demand for gold.

Gold prices inched up on Friday, but were headed for a third consecutive weekly decline, pressured by a firm dollar and a hawkish U.S. Federal Reserve that has dampened hopes for near-term rate cuts.

FUNDAMENTALS

* Spot gold firmed 0.2% to $4,657.50 per ounce as of 0112 GMT. Bullion has lost more ‌than 7% so ⁠far ⁠this week.

* U.S. gold futures for April delivery rose 1.1% to $4,657.90.

* The dollar strengthened, making greenback-priced bullion more expensive for holders of other currencies.

* Oil prices stayed above $105 a barrel after touching $119 on Thursday, as Iran attacked energy targets overnight in the Middle East.

* U.S. President Donald Trump told Israel not to repeat its strikes on ⁠Iranian natural ‌gas infrastructure after tit-for-tat attacks on energy facilities sent prices surging, escalating the U.S.-Israeli war with Iran.

* Iran's military ⁠said the attacks on Iran's energy infrastructure marked "a new stage in the war", prompting it to target energy sites linked to the United States.

* The closure of the Strait of Hormuz kept crude elevated, adding to inflationary pressures by pushing up transport and manufacturing costs. While rising inflation typically boosts gold's appeal as a hedge, high interest rates curb demand for the ‌non-yielding asset.

* Most major developed market central banks kept rates unchanged this week, but signalled they were ready to tighten further if the energy-driven ⁠inflation shock persists.

* Interest rate futures show traders see little chance of a Fed reduction this year, according to the CME's FedWatch tool.

* Analysts at OCBC said the medium-term outlook for gold stays constructive, but near-term price action is likely to stay choppy.

* Spot silver gained 0.1% to $73 per ounce. Spot platinum rose 0.1% at $1,972.80 and palladium added 0.4% to $1,452.21.

DATA/EVENTS (GMT)

0100 China Loan Prime Rate 1Y, 5Y Mar

1000 EU Total Trade Balance SA Jan

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