Gold heads for weekly fall as Fed officials strike hawkish tone

By Nakul Iyer

(Reuters) - Gold prices rose on Friday but a more hawkish stance of U.S. Federal Reserve officials on stimulus tapering and interest rate rises kept the metal, seen as an inflation hedge, on course for a third straight weekly drop.

Spot gold rose 0.2% to $1,772.53 per ounce by 0649 GMT, after hitting its lowest in nearly a month on Thursday. U.S. gold futures gained 0.6% to $1,773.70.

The metal has declined 1.1% so far in the week as a number of Fed officials suggested the central bank might accelerate stimulus tapering, with Chairman Jerome Powell saying that decision could be reached in its upcoming policy meeting.

"We got the Fed that is more hawkish and an environment where if anything hits the fan, especially with the new variant, traders will likely buy into the dollar. That is a negative environment for gold," said IG Markets analyst Kyle Rodda.

The Omicron coronavirus variant has sparked fears over the pace of the economic recovery, weighing on risk sentiment.

Investors' focus now turns to the U.S. nonfarm payroll report due at 1330 GMT.

"If there are signs that jobs growth is strong and wage growth is still picking up, that adds impetus to calls that the Fed will have to increase the pace of tapering, weighing on gold," Rodda said.

Reduced stimulus and interest rate hikes tend to push government bond yields up, raising the opportunity cost of holding non-interest bearing gold.

"While rising bets for quicker monetary policy tightening and dollar strength are downside risks, inflation is likely to stay elevated well into 2022 and that should support gold in the medium-term," said Sugandha Sachdeva, vice president of commodity & currency research at Religare Broking.

Spot silver rose 0.1% to $22.40 an ounce. Platinum gained 1% to $946.52, while palladium rose 1.5% to $1,808.13.

(Reporting by Nakul Iyer in Bengaluru; Editing by Subhranshu Sahu)