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Gold lower on dollar gains after US data boosts rate hike prospect

Gold will continue to shine amid a weak dollar, says author and gold pro Jim Rickards.
Simon Dawson | Bloomberg | Getty Images
Gold will continue to shine amid a weak dollar, says author and gold pro Jim Rickards.

Gold fell on Friday as the dollar rose after U.S. economic data came in within analysts' expectations, cementing assumptions of an interest rate increase by the Federal Reserve by year-end.

U.S. retail sales rebounded 0.6 percent in September after declining 0.2 percent in August. Producer prices also rose broadly last month to record their biggest year-on-year increase since December 2014.

Spot gold was down 0.3 percent at $1,253.90 an ounce. The metal was on track to end the week mostly flat. U.S. gold futures down to 0.2 percent at $1,254 an ounce.

"We are in the midst of one of those large Fed-related moves - we saw an almost $100 upswing in June and July and we are now seeing a $100 decline in September and October as markets see a Fed rate hike coming in," ING Bank senior strategist Hamza Khan said.

The dollar index dollar gained 0.3 percent against a basket of six major currencies.

Boston Federal Reserve President Eric Rosengren said on Friday that investors were probably right in placing "very high" odds on a U.S. interest rate increase in December, a step he argues is already overdue.

Rosengren's comments came as he opened a two-ay conference on economics that will include a lunch address by Fed Chair Janet Yellen.

The Fed's minutes of its last rate-setting meeting, released on Wednesday, showed several policymakers felt a rate hike was warranted "relatively soon" if the U.S. economy continued to strengthen. That prompted investors to raise their bets on an increase at its December policy meeting.

Markets are now pricing in around a 70 percent chance that the Fed will move.

Gold is highly sensitive to increases in U.S. interest rates, which can lift the opportunity cost of holding non-interest-bearing gold.

"The dollar will likely push higher going into year-end, offering gold its most formidable headwind and even countering the impact of weaker equities," INTL FCStone said in a note.

Spot gold may consolidate further in a narrow range of $1,250-$1,266 per ounce for one day before falling to the Oct. 7 low of $1,241.20, according to Reuters technical analyst Wang Tao.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.28 percent to 961.57 tonnes on Thursday.

Among other precious metals, silver inched up 0.1 percent at $17.46 an ounce. Platinum fell 0.5 percent to $932.25 an ounce, after touching its lowest since March in the previous session. It was down 3.5 percent for the week.

"The fact that the platinum price is low in comparison to gold should generate more demand from the jewelry industry," Commerzbank said in a note.

Palladium was unchanged at $638.10 after touching a new three-month low of $633.22 an ounce.