Gold prices retreated for a second straight session, tracking toward a weekly loss as a strengthening U.S. dollar and resurgent expectations of further Federal Reserve rate hikes offset a modest intraday bounce.
Spot gold rose 0.2% to $4,288.36 an ounce by 0200 GMT, but remained down 2% for the week. U.S. gold futures edged 0.6% higher to $4,323.10.
The dollar index was on track for a weekly gain, making greenback-priced metals more expensive for foreign buyers, while U.S. Treasury yields extended their advance. Expectations of a higher-for-longer rate path firmed after two Federal Reserve policymakers signaled that additional rate increases may be necessary to bring inflation back to the central bank's 2% target, following last week's quarter-point rate hike.
"Returning inflation to 2% is a top priority, and I will support the policy path that gets us there while carefully weighing risks to the labour market along the way," Philadelphia Fed President Anna Paulson said. New York Fed President John Williams also suggested tighter monetary policy remains on the table.
"Focus will definitely continue to be on the interest rate situation. When we start to see markets pricing in a much more hawkish Fed, it strengthens the dollar and is negative for gold," said Kelvin Wong, senior market analyst at OANDA.
Although gold is traditionally regarded as an inflation hedge, higher real rates tend to suppress demand by boosting the relative appeal of yield-bearing assets. Gold had rallied more than 3% to $4,479.84 an ounce on Aug. 19 after a surprise U.S. Treasury liquidity-support announcement for longer-dated bonds knocked bond yields and the dollar sharply lower, breaking above its 100-day moving average around $4,381.
Spot silver slipped 0.1% to $63.81 an ounce, platinum climbed 0.5% to $1,756.90 and palladium fell 1.3% to $1,257.56. All three precious metals were poised for weekly losses.
Despite the near-term headwinds, some analysts remain constructive on the medium-term outlook. "I remain very positive on gold for the rest of the year. Ongoing geopolitical friction and mounting sovereign debt are driving constant demand for safe-haven assets," said Joshua Rotbart, founder of J. Rotbart & Co.
