* Spot 2.2% gold so far this week
* Silver on track for best week in seven (replays, adds comment, updates prices)
October 15 (Businesshala) – Gold was set for its best week in more than five months on Friday as a return to the US dollar and Treasury yields lifted the metal’s appeal despite a weakening Federal Reserve .
Spot gold held steady at $1,794.85 an ounce as of 0334 GMT, but was up 2.2% for the week so far. US gold futures were down 0.1% at $1,796.10.
The dollar index was headed for its first weekly decline in six, making gold cheaper for holders of other currencies. The benchmark US 10-year Treasury yield was also below its multi-month high.
DailyFX currency strategist Ilya Spivak said gold is still showing a downward trend on earlier Fed rate hikes and expectations of a stronger dollar and higher yields.
Spivak said, “There’s kind of a feeling in the markets that the CPI (data) and FOMC minutes didn’t really move the story…
While most Fed policymakers agree that the central bank may begin reducing its monthly bond purchases as soon as next month, they are sharply divided on inflation and what they should do about it.
Thursday’s data showed US producer prices posted their smallest gains in nine months in September. The report comes on the heels of a solid increase in consumer prices.
While gold is often considered an inflation hedge, lower incentives and higher interest rates raise government bond yields, increasing the opportunity cost of holding non-yielding bullion.
Analysts at ANZ Research said in a note that gold valuations around $150, expect the rise in inflation to be temporary. However, he added that pricing pressure remains intense.
Spot silver fell 0.3% to $23.48 an ounce, but was headed for its biggest weekly gain in seven.
Platinum rose 0.2% to $1,057.20 and palladium rose 0.2% to $2,132.33. Both the metals were trading with gains for the second week. (Reporting by Eileen Soreng in Bengaluru; Editing by Subhranshu Sahu)