July 31 (Reuters) - Gold dropped more than 1% on Friday as the U.S. dollar regained footing, but was still on track to post its first monthly rise since February as investors pared back rate hike bets after the Federal Reserve meeting this week.
Spot gold slipped 1% to $4,062.05 per ounce by 0857 GMT but was headed for a weekly rise of 0.5%. Prices were also up about 1.7% so far this month.
U.S. gold futures for August delivery dropped 1.1% to $4,059.70.
"Gold struggles to regain meaningful momentum and remains in the corrective phase of a broader structural bull market," independent analyst Ross Norman said.
"The dollar index has staged a modest recovery back above the key 100 level following its sharp post-FOMC sell-off, taking some of the shine off gold today."
The dollar gained 0.3% after dropping about 2.4% on Thursday, in its biggest one-day drop since January 2023. A stronger dollar makes bullion more expensive for holders of other currencies.
On Wednesday, the Fed left interest rates unchanged at its policy meeting, while U.S. central bank chief Kevin Warsh vowed to bring inflation down, leaving markets confused.
Traders are now pricing in a 63% chance of a rate hike in September, versus an over 80% chance a week before, according to the CME FedWatch Tool. FEDWATCH/
Data on Thursday showed U.S inflation slowed in June, but the easing was likely temporary as renewed hostilities in the Middle East lifted oil prices.
Surging energy costs have heightened inflation concerns and reinforced expectations of elevated U.S. interest rates, undermining the appeal of the non-yielding bullion.
Meanwhile, gold demand in India remained muted this week as buyers waited for clearer price direction, while a stronger yuan lifted purchases in top consumer China.
Among other metals, spot silver fell 1.4% to $58.14 per ounce.
Platinum slid 1.7% to $1,632.63, and palladium dropped 1.3% to $1,287.75, although both metals were headed for a monthly gain.
Reporting by Sukanya Mitra in Bengaluru; additional reporting by Swati Verma; Editing by Diti Pujara
