What rising interest rates mean for gold prices

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Gold prices fell on Friday, hitting a two-year low as expectations of higher U.S. interest rates dented demand for the metal. 

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While palladium surged to an all-time high on supply concerns.

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Spot gold was down 0.7 percent at $1,244 an ounce by 1413 GMT. U.S. gold futures were also down 0.7 percent at $1,245 per ounce.

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Gold has come under pressure this week as the dollar strengthened.

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U.S. Treasury yields hit new highs on expectations that the Federal Reserve will raise interest rates next month.

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Higher rates would boost the dollar and push up bond yields, making gold less attractive as it pays no interest.

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"The market is worried about further Fed rate hikes and a stronger dollar," said Julius Baer analyst Carsten Menke.

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"With real rates in positive territory, there is no longer any incentive to hold onto gold."

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Gold prices are down about 9 percent so far this year, on track for their biggest annual decline since 2013.

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Palladium, meanwhile, jumped to a record high of $1,096.50 an ounce, up 1.8 percent on the day and more than 60 percent higher this year.

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