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

Marked ingots of 99.99 percent pure gold are placed in a cart at the Krastsvetmet non-ferrous metals plant in Krasnoyarsk

By Brijesh Patel

(Reuters) - 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 by 1:55 p.m. ET (1755 GMT), after rising to its highest since Aug. 30 earlier in the session. U.S. gold futures settled 0.5% higher at $1,728.6.

The yellow metal was on track to rise 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. [GOL/ETF]

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. [GOL/AS]

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

Palladium gained 2% to $2,182.18 per ounce and was headed for its best week since July.

Platinum inched up 0.1% to $879.83 per ounce and was on track for its biggest weekly gain since early June.

(Reporting by Brijesh Patel, Arundhati Sarkar and Arpan Varghese in Bengaluru; Editing by Vinay Dwivedi and Shounak Dasgupta)