Aug 7 (Reuters) - Gold rose on Friday to be on track for its biggest weekly rise since January, as easing inflation worries tied to a Middle East peace deal lowered expectations of U.S. rate hikes, while investors awaited nonfarm payroll data.
Spot gold was up 2.1% at $4,326.59 per ounce by 1130 GMT, after hitting a seven-week high on Thursday. Prices have gained over 7% for the week so far.
U.S. gold futures rose 2% to $4,386.10.
"Gold is a derivative of Fed policy expectations at the moment. The marginal drop in the implied probabilities of Fed rate hikes, along with the belief that Chairperson Warsh may be less of a policy hawk than expected, has driven the metal higher," said Kyle Rodda, a senior financial market analyst at Capital.com.
Traders currently see a 55% chance of an increase in U.S. interest rates in September, down from 67% last week, according to the CME FedWatch Tool.
U.S. President Donald Trump told reporters that he believed the war with Iran would be over soon.
Crude oil prices were set for a weekly loss, easing inflation concerns and reducing expectations of higher interest rates. While gold is seen as an inflation hedge, higher rates tend to hurt its appeal because it offers no yield.
The U.S. Labor Department's nonfarm payrolls report for July is due at 1230 GMT.
"Bullion may pare some of this week's gains, with its 50-day SMA potentially offering support, should the U.S. jobs market demonstrate its resilience once more, while adding upside risks to the inflation and Fed rate outlooks," said Han Tan, chief market analyst at Bybit.
After a month of consolidation, gold broke above the 50-day moving average this week, which now supports it at $4,151. The next one is the 100-day moving average, currently serving as a resistance level at $4,389.
China's central bank stepped up its gold purchases for a fifth straight month in July, adding the most bullion to its reserves since October 2023, official data showed on Friday.
Spot silver climbed 4.4% to $64.16, platinum rose 1.7% to $1,758.13 and palladium gained 0.7% to $1,380.50. All three metals were headed for weekly gains.
Reporting by Pablo Sinha in Bengaluru; Editing by Janane Venkatraman and Joyjeet Das
