Gold set for a weekly drop as traders assess Fed signals

By Reuters News

By Pablo Sinha

Oct 16 (Reuters) - Gold prices were set for a weekly loss as traders weighed the prospect of further Federal Reserve rate hikes this year following a run of hotter-than-expected US inflation data.

Spot gold was up 0.1% at $4,175.34 per ounce by 9:44 EDT (1344 GMT) and was down 0.4% so far in the week.

US gold futures for December delivery rose 0.7% to $4,198.20 per ounce.

"We're very much rangebound and tilting toward the lower bound of support, the main reason being we still have a lot of ambiguity in what the Fed will do," said Bart Melek, global head of commodity strategy at TD Securities.

Federal Reserve Chair Kevin Warsh voiced optimism about US economic strength but gave no clues about the central bank's rate-path trajectory.

Data on Thursday showed US producer prices increased by the most in 4-1/2 years last month. The data followed Wednesday's consumer price report, which showed prices accelerated in September.

Federal Reserve Bank of Chicago President Austan Goolsbee said the data was "discouraging" while Bank of Cleveland President Beth Hammack said the Fed might need to hike interest rates more aggressively if there were to be a notable deterioration in the public's inflation expectations.

Traders largely expect the US central bank to hold rates steady this month, while pricing in a 90% chance of a rate hike in December, according to the CME's FedWatch Tool.

Although gold is typically seen as an inflation hedge, higher interest rates tend to reduce the appeal of the non-yielding metal.

"Over the rest of this year, gold prices are likely to edge lower as the Fed continues raising rates and fears around the end of the AI boom prove to be temporary," said Hamad Hussain, a climate and commodities economist at Capital Economics.

Elsewhere, gold traded at a premium in India this week for the first time in more than three months as a pullback in prices boosted jewellery purchases. GOL/AS

Among other metals, spot silver gained 0.3% to $57.62 per ounce, platinum gained 1.1% to $1,643.70 and palladium was up 0.4% to $1,130.75. However, all three metals headed for weekly losses.

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