LONDON (Reuters) - Gold hit its lowest since late May on Friday as the dollar surged to a near 14-year peak on expectations for a U.S. rate hike next month and higher fiscal spending from U.S. President-elect Donald Trump's incoming administration.
The dollar is on track for its best fortnight since 1988 versus the yen, and hit its highest since early 2003 versus a basket of currencies, as Trump's win stoked talk of tax cuts and fresh investment in infrastructure to boost the U.S. economy.
That weighed on gold, which is priced in dollars, sending it to its lowest since May 30 at $1,203.52 an ounce.
It pulled back some lost ground as the dollar steadied against the euro in early afternoon trade, but remained under pressure.
Spot gold was down 0.4 percent at $1,211.67 an ounce at 1230 GMT, while U.S. gold futures for December delivery were down $5.80 an ounce at $1,211.10, off a low of $1,201.30, its weakest since mid-February.
"It's all about expectations, and what markets expect is a large fiscal stimulus, mostly infrastructure spending, and for the Federal Reserve to be much more aggressive in hiking rates," Capital Economics analyst Simona Gambarini said.
"That's what's being reflected in the (gold) price."
Spot prices have fallen more than 1 percent this week and are down by more than $130 an ounce from their post-election peak, hurt by the jump in the dollar and a surge in U.S. Treasury yields.
U.S. bond yields were set for their biggest fortnightly rise in 15 years on Friday on bets U.S. inflation and interest rates are headed higher. That increased the opportunity cost of holding non-yielding bullion.
Fed chair Janet Yellen said on Thursday in congressional testimony that Trump's election has done nothing to change the Fed's plans for a rate increase "relatively soon".
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, fell by 5.6 tonnes on Thursday to their lowest since June. Holdings have fallen by nearly 30 tonnes since the U.S. election.
"With the pressure that has been seen in gold prices since early November, total ETF holdings in gold have fallen to their lowest level since early July 2016," ING said in a note. "Further outflows could put further pressure on gold prices."
Silver was down 0.4 percent at $16.62 an ounce, having earlier touched its lowest since June 8 at $16.42, while platinum was 0.2 percent lower at $928.49. Both metals were set for a second consecutive weekly decline.
Palladium was down 1.9 percent at $713 an ounce, but was set to post a third weekly rise, of more than 6 percent. The metal has benefited from strength in industrial metals, on hopes that higher U.S. infrastructure spending could boost demand.
(Additional reporting by Apeksha Nair and Nallur Sethuraman in Bengaluru; editing by Jeremy Gaunt and Jason Neely)