Gold set for fifth weekly drop on dollar, U.S. rate prospects

By Clara Denina

LONDON (Reuters) - Gold edged lower on Friday as the dollar and global equities rose and was headed for a fifth straight weekly decline on expectations of a Federal Reserve rate hike next week.

Spot gold dropped 0.6 percent at $1,163.72 an ounce by 1228 GMT, and was down 1 percent for the week.

The metal fell more than 8 percent in November and hit a 10-month low on Monday, as U.S. Treasury yields rose after Donald Trump's election led to speculation that his commitment to infrastructure spending would spur growth. This sentiment was aided by solid U.S. economic data.

As gold pays no interest, the rise in returns from U.S. bonds is seen as negative for the metal as these are viewed as a key indicator the Fed will continue to raise rates into the new year, analysts said.

"Technically the trend could still be called bearish, even if the space for further corrections is clearly reduced, after prices moved down by $200 from the two-year peak reached in July," ActivTrades chief analyst Carlo Alberto de Casa said.

"We could see immediate support at $1,145-$1,150, while resistance is placed at $1,200."

The dollar was up 0.4 percent versus a basket of six major currencies, as a rise in Fed interest rates at next week's policy meeting seems fully priced in.

Interest rate futures implied traders saw a 98 percent chance the Fed would raise rates by a quarter point next week, and about a 50 percent chance it would raise rates by at least another quarter point by June 2017, according to CME Group's FedWatch program.

"Because of a stronger dollar and prospects of another rate hike, gold prices are hovering around these levels," said Barnabas Gan, an analyst at OCBC Bank in Singapore.

"If there persists strong growth prospects into 2017 due to higher oil prices ... gold prices may trend lower towards the end of the year."

Data on Thursday showed the number of Americans filing for unemployment benefits fell from a five-month high last week, pointing to labour strength that underscores the economy's sustained momentum, reinforcing the case for a Federal Reserve rate increase.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.34 percent to 860.71 tonnes on Thursday. SPDR holdings have fallen nearly 9 percent since November and are on track for a fifth straight week of losses.

Silver was down 0.6 percent at $16.93 an ounce and platinum fell 1.1 percent to $931.80.

Palladium rose 0.5 percent to $739.50 an ounce, after reaching its lowest since mid-November in the previous session.

(Additional reporting by Swati Verma and Nallur Sethuraman in Bengaluru; Editing by Elaine Hardcastle and David Evans)