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 Gold prices were set on Friday for their biggest weekly gain since April, after rallying close to a one-month high, as markets scale back expectations of further U.S. interest rate hikes, sending the dollar to its lowest in more than one year.

Spot gold held steady at $1,961.79 per ounce by 0319 GMT, and up nearly 2% for the week. U.S. gold futures rose 0.1% to $1,965.80.

Making gold less expensive for overseas investors, the dollar index touched its lowest level since April 2022.

Gold's got room to sort of expand from here, said Matt Simpson, a senior market analyst at City Index, adding that the next major levels could be $1,985 to $2,000.

Data on Thursday showed U.S. producer prices barely rose in June, providing more evidence the economy had entered a disinflation phase.

Meanwhile, the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, indicating the U.S. labor market remained tight.

Federal Reserve Governor Christopher Waller said on Thursday he's not ready to call an all clear on U.S. inflation and favors more rate hikes this year, saying the upcoming July meeting should bring an increase.

Interest rate futures showed markets mostly priced in another rate hike from the Federal Open Market Committee (FOMC) at its July 25-26 meeting, but expectations of further increases have dropped.

However, if the Fed does indicate more rate increases, "that could provide some nervousness (among gold investors)" Simpson added.

Gold is used as a safe investment during times of political and financial uncertainty, but higher interest rates increase the opportunity cost of holding non-yielding bullion.

Among other precious metals, spot silver was flat at $24.8402 per ounce, set for its biggest weekly gain since March.

Platinum shed 0.2% to $971.11 and palladium dropped 1.1% to $1,280.95, but were poised for a second straight weekly rise.