Gold gains over 1%, but on course for monthly fall

© Reuters. FILE PHOTO: An ingot of 99.99 percent pure gold is cast at the Krastsvetmet non-ferrous metals plant in the Siberian city of Krasnoyarsk, Russia March 10, 2022. REUTERS/Alexander Manzyuk

By Ashitha Shivaprasad

(Reuters) - Gold prices rose more than a percent on Friday, driven by a retreat in the dollar, although the yellow metal was set to post a monthly drop on bets of aggressive policy tightening by the U.S. Federal Reserve.

Spot gold rose 0.7% to $1,908.20 per ounce by 1421 GMT. However, it fell 1.4% in April, marking its first monthly drop since January, and lost 1.1% this week.

U.S. gold futures gained 1% to $1,910.50 per ounce.

"Gold market has seen consistent sell-off in the past weeks as the dollar rallied. Currently, the dollar index has declined, which is lifting gold prices," said Edward Meir, an analyst with ED&F Man Capital Markets.

The dollar index fell 0.4% after touching a 20-year high on Thursday, making gold less expensive for those holding other currencies. [USD/]

Further lifting bullion's appeal, data showed the U.S. economy unexpectedly contracted in the first quarter amid a resurgence in COVID-19 cases and drop in pandemic relief money from the government.

U.S. labour costs surged by the most in 21 years in the first quarter, pointing to rising wage inflation and supporting the Federal Reserve's aggressive monetary policy stance.

"The GDP data and the cost index for employment data showed that inflation still running fairly hot, this is generally supportive for gold," Meir added.

Gold is considered a hedge against soaring inflation and uncertainties, but rising interest rates dampen its appeal by increasing the opportunity cost of holding the non-interest bearing asset.

Markets participants' focus now shifts to the U.S. central bank's two-day policy meeting starting on May 3, when officials are expected to increase the target policy rate by half a percentage point.

Spot silver fell 0.1% to $23.12 per ounce, platinum advanced 2.1% to $939.03. Both metals were set to post a monthly fall.

Palladium rose 3.3% to $2,305.98 per ounce.