Gold hovers below two-week peak on faster rate hike bets

LONDON, Feb 11 (Reuters): Gold prices edged higher on Friday but traded below a two-week peak hit in the previous session on bets of more aggressive interest rate hikes from the Federal Reserve following a sharp jump in US consumer prices.

Spot gold rose 0.3per cent to $1,831.78 per ounce by 1313 GMT, poised for a weekly gain of about 1.3per cent. US gold futures fell 0.3per cent to $1,831.90.

"Stronger-than-expected inflation is raising the risk of faster rate hikes," said Soni Kumari, a commodities strategist at ANZ, adding that the gold market is reacting to this and a stronger dollar.

Pressure increased on the Fed to take a stronger stand against inflation after an unexpectedly large jump in US consumer prices bolstered the view that the central bank is behind the curve. read more

Expectations for a firm Fed response next month lifted the dollar and sparked a dip in global equities, and drove benchmark 10-year US Treasury yields higher on Thursday, but they have since taken a step back.

Higher yields and interest rate hikes dent the appeal of bullion by raising the opportunity cost of holding non-interest-paying gold, while a higher dollar makes it less attractive for overseas buyers.

"From a technical point of view, bullion is still trying to surpass the $1,835 threshold, while the first major support zone is represented by the $1,800 mark," said Carlo Alberto De Casa, market analyst at Kinesis.

"Investors are still trusting gold," he said in a note, and that "gold is also representing a hedge in case central banks would not be able to contain inflation."