NEW YORK: Gold slumped more than 2% to a near one-year low on Thursday as the dollar extended its sharp rally, while expectations grew for a steep interest rate hike from the Federal Reserve.

Spot gold fell 1.5% to $1,710.02 per ounce by 2:02 p.m. ET (1802 GMT), after falling over 2% earlier in the session. US gold futures settled down 1.7% to $1,705.8.

The dollar soared to a 20-year high, emerging as a preferred save haven amid growing economic risks of late, at gold’s expense.

“The stronger dollar is pushing gold lower. After the consumer inflation data, traders have increased their expectations from a 75 bps rate hike to a 100 bps rate hike,” hurting gold, said Philip Streible, chief market strategist at Blue Line Futures in Chicago.

“Gold will unlikely see any upside unless inflation deteriorates enough to stop interest rate hikes or if other central banks start to be as aggressive as Fed, and that can weaken dollar,” Streible added.

Although it is considered an inflation hedge, gold’s appeal tends to dim amid elevated interest rates since bullion yields no interest.

Building the case for a steep rate hike to tame inflation, data on Wednesday showed US annual consumer prices surged, resulting in the largest annual increase in inflation in 40-1/2 years.

Meanwhile, the Fed’s Christopher Waller said “markets may have gotten ahead of themselves” in pricing in a 100 bps rate hike for July.

US weekly jobless claims rose for the second straight week, suggesting some cooling in the labor market.

In the physical markets, second biggest bullion consumer India’s plain gold jewellery exports to the UAE jumped in May.

Spot silver dipped 4.2% to $18.38 per ounce, platinum was down 1.5% at $842.37, while palladium fell nearly 3% to $1,915.63.