Gold gains as dollar dip offsets some pressure from rate hike bets

A gold seller checking the weight of gold bars before trading at a gold shop in Chinatown, Bangkok, Thailand.
Anusak Laowilas | Nurphoto | Getty Images

Gold rose on Friday as the dollar's retreat temporarily seemed to stave off some pressure on the precious metal from prospects of more interest rate hikes.

Spot gold rose 0.5% to $1,716.30 per ounce, after rising to its highest since Aug. 30 earlier in the session. U.S. gold futures settled 0.4% higher at $1,727.0.

The yellow metal rose 0.3% for the week, its first weekly rise in four.

"The U.S. dollar index really dropped sharply overnight and that has supported the gold and silver markets. Also seeing some short-covering in the futures markets heading into the weekend," said Jim Wyckoff, senior analyst at Kitco Metals.

The dollar dropped to a more than one-week low against its rivals, making greenback-priced bullion cheaper for overseas buyers.

However, the gold market continues to see a slow and steady reduction of exchange-traded funds (ETFs), and trading volumes on U.S. futures markets continue to weaken, suggesting that the move higher is unlikely to be sustained, said independent analyst Ross Norman.

Investors now await U.S. inflation data for August due early next week after recent hawkish comments from Fed Chair Jerome Powell cemented bets of a large rate hike.

"If consumer prices come in hotter than expected, gold might see selling pressure target the $1,680 region" and a sharp deceleration with pricing pressures might only provide a modest boost for gold, Edward Moya, senior analyst with OANDA, said in a note.

Higher interest rates increase the opportunity cost of holding non-yielding bullion.

In the physical gold market, demand in some Asian hubs remained firm this week amid lower prices.

Silver rose 1.2% to $18.79 per ounce and was set for a weekly gain.

Palladium gained 1.3% to $2,167.47 per ounce in its best week since July.

Platinum inched down 0.1% to $878.73 per ounce in its biggest weekly gain since early June.