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Gold prices fell to a 10-week low on Thursday, as an elevated US dollar hurt demand for greenback-priced bullion, while an impending Federal Reserve interest rate hike also dented the metal’s appeal as an inflation hedge.

Spot gold was down 0.5% at $1,877.18 per ounce, as of 0519 GMT, its lowest since February 16. US gold futures slipped 0.6% to $1,877.70.

Gold has been holding very well above $1,900, but has seen pressure from the dollar, and the underlying factor of the US Federal Reserve being expected to raise interest rates by 50 basis points next week, said Brian Lan, managing director at dealer GoldSilver Central.

The dollar index is at five-year highs and a further push above 103.82 would send it to levels not visited since late-2002.

A stronger dollar makes greenback-priced gold less attractive for other currency holders.

US MIDDAY: Gold firms

Benchmark 10-year US Treasury yields also firmed as investors awaited further clarity on the “restrictive” policy the Fed plans to pursue next week to combat inflation by curbing economic growth.

Gold is highly sensitive to rising US short-term interest rates and higher yields, which increase the opportunity cost of holding non-yielding bullion. However, gold is also seen as a safe store of value during economic and political crises.

With gold prices failing to push higher despite a backdrop of the Ukraine war and rapid inflation, investors have probably decided to look elsewhere, Lan said, adding that lockdowns in China to combat the spread of COVID-19 have impacted demand from the top consumer.

Spot silver dropped 0.8% to $23.09 per ounce, platinum eased 0.6% to $912.22, while palladium gained 1.5% to $2,234.98.

For gold, in the event of further downside, the next level on watch may be at $1,850, Yeap Jun Rong, a market strategist at IG, said in a note.

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