LONDON (Reuters) - Gold prices climbed to the highest in nearly two weeks on Friday after data pointed to weak U.S. inflation, raising doubts about the prospects of another interest rate hike this year.
U.S. consumer prices were unchanged in June and retail sales fell for a second straight month.
"The downside surprise in inflation and retail sales data was not good news for the dollar index and investors have pushed their bearish bets further," said Naeem Aslam, chief market analyst at Think Markets.
"Gold is the net beneficiary of this data as investors factor in the impact of the rate hiking cycle."
Spot gold was up 1.2 percent to $1,231.82 per ounce at 1400 GMT, the strongest since July 3. It was up 1.6 percent for the week so far, which would be its biggest weekly gain since mid May.
U.S. gold futures for August delivery gained 1.1 percent to $1,230.40 per ounce.
The dollar index slid to the lowest since September last year following the U.S. data.
A weaker greenback boosts gold, making the dollar-priced commodity cheaper for investors holding other currencies.
Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen, said the chart picture had been damaged last week when gold broke below its May lows, but bullion was now fighting back.
"The key level is $1,230 on gold. In order to turn neutral again we need to move back above that level," he said.
Meanwhile, holdings at the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund fell 0.43 percent to 828.84 tonnes on Thursday from 832.39 tonnes on Wednesday.
Silver prices climbed 2.5 percent to $16.05 per ounce, the biggest one-day gain since mid-March.
In silver, there was a sharp split between funds, which had largely sold off their record long position, and ETF investors, who had been recently buying, Hansen said.
"The funds are seeing the price action as negative and are scaling back," he said ahead of the U.S. data. "But we also know they are the ones that could make the quickest changes. A move above $16.20 could trigger quite a bit of accelerated buying from the funds."
Palladium gained 1.2 percent to $861.70 per ounce and was set to end the week about 3 percent higher while platinum rose 2.2 percent to $921.50 per ounce.
Additional reporting by Nithin Prasad and Arpan Varghese in Bengaluru; Editing by Jon Boyle