KONTAN.CO.ID - LONDON. Gold prices edged lower on Friday and were set for a second straight weekly drop, as investors remained wary of impending interest rate hikes by the U.S. Federal Reserve to tame high inflation.

Although gold is seen as an inflation hedge, higher rates tend to dull the appeal of bullion, which pays no interest.

Spot gold was down 0.1% at $1,859.80 per ounce, as of 0704 GMT, hitting its lowest level since Jan. 6 earlier in the session. For the week so far, the metal was down 0.3%.

U.S. gold futures fell 0.4% to $1,858.30.

Last week's stronger-than-expected U.S. job numbers have contributed to expectations that the Fed will end up concluding its rate-hike cycle above 5%, while rate-cut expectations for the second half of this year have evaporated and driven gold lower, said Ilya Spivak, head of global macro at Tastylive.

Market participants are now expecting the Fed's target rate to peak at 5.153% in July from a current range of 4.5% to 4.75%.

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Richmond Fed President Thomas Barkin said on Thursday "it just makes sense to steer more deliberately" with any further rate increases and that the decline in inflation seen so far had been "distorted" by some falling goods prices.

Barkin's comments came after Fed Chair Jerome Powell and several other policymakers this week indicated that interest rates might need to move higher than expected.

Gold prices have been in a consolidation mode and struggling for direction for the past several days, said Tastylive's Spivak, adding that the next big inflection point was likely to be the U.S. CPI report next week.

The dollar edged 0.1% higher against its rivals. A stronger greenback makes dollar-priced gold more expensive for buyers holding other currencies.

Elsewhere, spot silver rose 0.3% to $22.03 per ounce, and palladium shed 0.7% to $1,617.54.

Platinum was down 0.2% at $952.42 and was on track for a fifth consecutive weekly fall.

Editor: Anna Suci Perwitasari