Gold set for second weekly loss as dollar soars

Gold dropped to a 5-1/2-month low on Friday and was set for a second week of declines, as the dollar soared after comments from the Federal Reserve bolstered expectations that U.S. interest rates would rise next month.

Spot gold was down 0.6 % at $1,209.00 an ounce by 0501 GMT. Earlier in the session, it reached $1,204.99, its lowest level since May 30. 

U.S. gold futures dipped 0.7 pct to $1208.4 an ounce, after shedding nearly 1 % earlier in the day.

The dollar index rose to its highest since April 2003 and was set for its biggest weekly gain in a year after Fed Chair Janet Yellen provided a strong signal that U.S. interest rates would likely increase by year-end. 

"Yellen`s comments and a stronger dollar have pulled down the entire precious metals complex. Gold will be on a downtrend for now," said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central.

"People are speculating that Donald Trump`s policies will improve companies and equity markets, and lots of them are going to stocks and currencies. Gold has lost a bit of its safe-haven asset status."

Bullion has dropped nearly 10 % from a high of $1,337.40 per ounce, hit on Nov. 9, when Donald Trump was announced U.S. president-elect. 

The election of Donald Trump as U.S. president has done nothing to change the Fed`s plans for a rate increase "relatively soon", Yellen said on Thursday in Congressional testimony. 

Gold is highly sensitive to interest rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced. 

"The gold market seems to be fully accommodating a rate rise in December," HSBC analyst James Steel said in a note.

"Gold prices are down sharply... This should help encourage emerging markets` demand. We expect this to cushion – but not necessarily reverse – the latest drop in prices." 

Spot gold may drop towards $1,172 per ounce, as it has broken support at $1,210, according to Reuters technical analyst Wang Tao.

Holdings of SPDR Gold Trust, the world`s largest gold-backed exchange-traded fund, fell 0.61 % to 920.63 tonnes on Thursday. Holdings have decreased 2.33 % so far this month. 

Meanwhile, silver fell 0.17 % to $16.63 an ounce, and platinum dropped 0.5 % to $926.24. Both metals were set for a second consecutive weekly decline.

Palladium fell 1.41 % to $716.25 an ounce, but was set to post a third weekly rise. 

(Reporting by Apeksha Nair and Nallur Sethuraman in Bengaluru; Editing by Joseph Radford and Sherry Jacob-Phillips)