New York gold futures dropped almost 1 percent early on Friday, hurt by lower energy prices and a sharp dollar rise after a report showed signs of US consumer inflation, slashing expectations of more aggressive rate cuts from the Federal Reserve.
Even though rising consumer and wholesale prices should boost gold's appeal as a hedge against inflation, bullion could be hit by the dollar's strength in the near term, market watchers said.
"Crude oil's down. But I think that gold has been more focused on the dollar recently, more so than what's been going on in the energy markets," said David Rinehimer, director of Citi Futures Perspective in New York.
At 10:30 am EST (1530 GMT), most-active February gold on the Comex division of the New York Mercantile Exchange was down $6.90 at $797.10 an ounce. It hit a high of $808.50 and a bottom of $792.30, which marked the weakest level since December 6.
The dollar rose to a seven-week high against a basket of currencies after a government report showed that consumer prices climbed a bigger-than-expected 0.8 percent in November, the sharpest climb in more than two years and driven by surging energy costs.A higher dollar makes gold, which is denominated in the greenback, more expensive for investors holding other currencies. Gold is also viewed as an alternative currency to the US dollar.
Spot gold was quoted at $792.30/793.00 an ounce, compared with $797.10/797.80 in New York Thursday afternoon. London bullion dealers fixed the afternoon spot reference price at $789.50.
Comex March silver was down 25.20 cents or 1.7 percent at $13.985 an ounce, trading between $13.870 and $14.350. Spot silver was quoted at $13.82/13.87 an ounce, compared with $14.08/14.13 late Thursday in New York. London silver was fixed at $14.010. Nymex January platinum was down $2.60 at $1,469.00 an ounce. Spot platinum was quoted at $1,461/1,465. March palladium increased $1.20 to $353.00 an ounce. Spot palladium fetched $345/349.