Gold advanced on Friday and was headed for a weekly gain, buoyed by a weaker dollar after in-line U.S. inflation readings this week tipped the scales in favor of an interest rate hold by the Federal Reserve next month.
Spot gold was up 0.7% at $4,379.95 per ounce by 1:40 p.m. EDT (1740 GMT). Prices declined 1.3% in the previous session on profit-taking after touching their highest level since June 5. Bullion is up around 0.9% for the week so far.
U.S. gold futures settled 0.4% higher at $4,437.30.
"The lower U.S. dollar index is a friendly outside market that's supporting gold today," said Jim Wyckoff, a market analyst at American Gold Exchange.
The U.S. dollar index slipped 0.3%, making greenback-priced bullion more affordable for buyers overseas. [USD/]
Gold drew support from an unexpected decline in U.S. nonfarm payrolls in July, and inflation readings this week that were largely in line with expectations. This significantly lowered expectations of an increase in interest rates next month, with most analysts now seeing the central bank holding the current 3.50% to 3.75% range.
Markets are pricing in a 33% chance of a rate hike in September versus 55% last week, CME's FedWatch Tool showed. [FEDWATCH]
"As we expect the Fed not to raise interest rates, gold price therefore still has further upside potential," Commerzbank said in a note.
Lower interest rates tend to support non-yielding gold.
Meanwhile, transit through the Strait of Hormuz appeared to grind to a near-standstill after two more ships were attacked and the United States said it could maintain a naval blockade of Iran indefinitely.
Oil prices eyed weekly gains on the news. [O/R]
"If oil prices continue to rise, that's going to be a bearish element for the metals market because it would aid inflation and prompt central banks to raise interest rates," Wyckoff said.
Elsewhere, gold discounts in India widened to more than two-month highs. [GOL/AS]
Spot silver climbed 0.7% to $64.88 per ounce, platinum gained 1.8% to $1,746.97, and palladium added 1.1% to $1,320.93. Silver and platinum were poised for weekly gains, while palladium was set for a weekly loss.
