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Gold to fall by a week's worth on fears of rate hikes and tensions in the Middle East

Gold prices dropped on Friday and were set to suffer a weekly loss as tensions in the Middle East dampened expectations for a U.S. Iran peace deal, amid fears of rising inflation rates and interest rate hikes.

As of 0402 GMT, spot gold was down by 0.7%, at $4,442.94 an ounce. It is down about 2% this week.

U.S. Gold Futures for August Delivery?fell by 0.8% to $4469.10.

Hezbollah, a militia backed by Iran, rejected a ceasefire in Lebanon. Israel also said it would not withdraw its troops from Lebanon. This undermined the efforts of U.S. president Donald Trump to stop the fighting and forge peace with Tehran.

Nicholas Frappell is the global head of institutional market at ABC Refinery. He said that some pessimism about the outcome of the Iran conflict was negative for gold. "I think the trend is towards tighter interest rates, which also weighs on gold."

Kansas City Federal Reserve president Jeffrey Schmid stated on Thursday that the U.S. Central Bank's decision is to be patient and hold interest rates at their current level or raise rates in order to bring down inflation, which has been higher than target for years.

Mary Daly, the San Francisco Fed president, said that the U.S. interest rate path would depend on the direction the economy takes. She added that the Fed's monetary policy is "in good shape" and it is ready to respond in "either way."

Gold is often viewed as a hedge to inflation. However, rising interest rates can have a negative impact on this non-yielding material.

According to CME Group’s FedWatch tool, the markets are pricing in a Fed rate increase before year end, with a 51 percent chance of an action by December.

Investors will now be awaiting the U.S. nonfarm payrolls for May, which are due later that day, in order to gauge the direction of the Fed's monetary policies.

Silver spot fell by 1.6%, to $72.66 an ounce. Platinum dropped 1.1%, to $1.879.42. Palladium fell 1.6%, to $1.299.23. All metals are headed to a weekly loss. (Reporting by Pablo Sinha in Bengaluru; Editing by Subhranshu Sahu)

(source: Reuters)