Gold firm set for third weekly decline on dollar, hawkish Fed

Gold prices rallied on Friday, but headed for a third straight weekly decline, as a stronger dollar and pressure from a hawkish US Federal Reserve dampened hopes for a near-term rate cut.

Fundamentals

* Spot gold was up 0.2% at $4,657.50 an ounce by 0112 GMT. Bullion is down more than 7% so far this week.

* US gold futures for April delivery rose 1.1% to $4,657.90.

* The dollar strengthened, making greenback-denominated bullion more expensive for holders of other currencies.

* Oil prices held above $105 a barrel after touching $119 on Thursday, as Iran attacked energy targets in the Middle East overnight.

* U.S. President Donald Trump told Israel not to repeat attacks on Iranian natural gas infrastructure after tit-for-tat attacks on energy facilities fueled the escalation of the U.S.-Israeli war with Iran.

* Iran’s military said attacks on Iran’s energy infrastructure marked “a new phase in the war,” prompting it to target energy sites linked to the United States.

* The closure of the Strait of Hormuz kept crude elevated, increasing transportation and production costs, adding to inflationary pressures. While rising inflation generally boosts the appeal of gold as a hedge, higher interest rates curb demand for non-yielding assets.

* Most major developed market central banks kept rates unchanged this week, but signaled they were ready to tighten further if the shock to energy-driven inflation continued.

* According to CME’s FedWatch tool, interest rate futures show traders are less likely to see a Fed rate cut this year.

* Analysts at OCBC said the medium-term outlook for gold remains constructive, but near-term price action is likely to remain volatile.

* Spot silver rose 0.1% to $73 an ounce. Spot platinum rose 0.1% to $1,972.80 and palladium gained 0.4% to $1,452.21.

Data/Events (GMT)

0100 China Loan Prime Rate 1Y, 5Y Mar

1000 EU Total Trade Balance SA Jan