Gold up as dollar weakens, rate-hike fears cap gains

Gold rose on Friday as the dollar weakened, although prospects of more rate hikes from the U.S. Federal Reserve kept a lid on prices.

Spot gold was up 0.3% at $1,712.69 per ounce by 10:37 a.m. EST (1437 GMT), after rising to its highest since Aug. 30 at $1,729.29 earlier in the session.

U.S. gold futures rose 0.2% to $1,723.60.

"The US dollar index really dropped sharply overnight and that has supported the gold and silver markets. Also seeing some short covering in the futures markets heading into the weekend," said Jim Wyckoff, senior analyst at Kitco Metals.

The dollar dropped to a more than one-week low against its rivals, making greenback-priced bullion less expensive for overseas buyers.

The gold market continues to see a slow and steady reduction of exchange-traded funds (ETF) and trading volumes on U.S. futures markets continue to weaken, suggesting that the move higher is unlikely to be sustained, said independent analyst Ross Norman.

Investors now await U.S. inflation data for August due early next week after recent hawkish comments from Fed Chair Jerome Powell cemented bets of a large interest rate hike.

The European Central Bank raised its key interest rates by an unprecedented 75 basis points on Thursday and promised further hikes.

Traders are pricing in an 87% chance of a 75-basis-points rate increase at Fed's policy meeting later this month.

Higher interest rates increase the opportunity cost of holding non-yielding bullion.

In the physical gold market, demand in some Asian hubs remained firm this week as lower prices attracted buyers.

Elsewhere, spot silver rose 0.5% to $18.67 per ounce and was set for a weekly gain.

Palladium climbed 1.1% to $2,162.37 per ounce and was headed for its best week since July.

Platinum was steady at $879.81 per ounce and was on track for its biggest weekly gain since early June.