Gold rises, but on track for weekly loss as Fed rate hike expectations build

By Pablo Sinha

Sept 25 (Reuters) - Gold prices rose on Friday but was on track for a weekly loss, as rising US Treasury yields and growing expectations of Federal Reserve rate hikes weighed on the metal.

Spot gold was up 0.6% to $4,304.71 per ounce by 1043 GMT, but was down about 1.7% so far this week. US gold futures rose 1% to $4,340.

US and Iranian negotiators in New York are seeking a deal that would involve Tehran reopening the Strait of Hormuz and Washington lifting its economic blockade of Iran, sources close to the talks said.

"Gold finds support today as oil prices pull back on renewed hopes for a US-Iran deal," said Nikos Tzabouras, a senior market analyst at Jefferies-owned Tradu.com.

"That said, the precious metal is heading for weekly losses, as higher Fed rates and bond yields raise the opportunity cost of holding gold."

The Fed raised interest rates by a quarter-point last week, its first hike in three years, and flagged more hikes follow. Traders are pricing in a 71% chance of an October hike and a 95% chance of an increase in December, according to the CME FedWatch Tool.

Although gold is traditionally seen as a hedge against inflation, higher rates dampen demand as investors shift to yield-bearing assets.

Gold demand in India picked up modestly this week as lower prices drew in buyers ahead of the festive season. GOL/AS

Oil prices fell, and the dollar eased about 0.2%, making greenback-priced bullion more affordable for holders of other currencies. O/R USD/

"Lingering deficit fears could revive the debasement trend that drives investors toward hard assets like gold. Alongside persistent central bank demand, the precious metal has a credible case for a strong fourth-quarter recovery, should the macro winds begin to shift," said Tzabouras.

Spot silver gained 1.6% to $64.90 per ounce, platinum added 1.1% to $1,767.55 and palladium fell 0.7% to $1,265.03. All three metals were poised for weekly losses.