Gold fell sharply on Friday and was headed for its worst week in eight as hawkish remarks by U.S. Federal Reserve officials through the week bolstered bets for at least one more interest rate hike and buoyed the dollar.
Spot gold dropped 1.4% to $1,976.27 per ounce by 12:18 p.m. ET. U.S. gold futures fell 1.5% to $1,987.10.
Bullion has shed about 1.2% so far this week, pressured by the dollar's gains overall, which made bullion more expensive for overseas buyers.
Fed officials said on Thursday inflation remains "far above" the central bank's 2% target. Fed Governor Michelle Bowman reiterated that more work needs to be done to tame inflation.
While a rate hike will initially dull gold's appeal, an eventual pause will send gold to its recent all-time highs, said Bob Haberkorn, senior market strategist at RJO Futures, adding that "the Fed has a breaking point where they can't go anymore on rates without doing significant damage to the economy."
Gold was also pressured by an S&P Global survey that showed U.S. business activity accelerated to an 11-month high in April, which was at odds with growing signs that higher interest rates were cooling demand.
Markets now see an 89% chance of a 25-basis point rate hike at the Fed's May 2-3 meeting.
Rate hikes raise the opportunity cost of holding non-interest-bearing gold.
Silver fell 1.3% to $24.9549 per ounce, headed for its first weekly decline in six.
Platinum and palladium , used in catalytic converters to curb emissions in cars, bucked the trend. Platinum surged 2.5% to an over one-year high at $1,121.101, while palladium jumped 0.8% to $1599.4642.
Supply concerns due to rampant power issues in key producer South Africa could be driving platinum, while palladium was additionally benefiting from short-covering, said Daniel Ghali, commodity strategist at TD Securities.