By Bharat Gautam

(Reuters) – Gold prices dropped to a 10-week low Thursday due to a weaker U.S. dollar and a Federal Reserve interest rate rise that is imminent. The metal’s value as an inflation hedge also fell.

It was 0.5% lower at $1.877.18 per troy ounce as of 0519 GMT. This mark is the lowest since February 16th. The U.S. lost 0.6%, to $1.877.70.

Gold is holding well over $1,900 but has come under pressure from the dollar and the fact that the U.S. Federal Reserve will likely raise interest rates next week by 50 basis points, according to Brian Lan, the managing director of dealer GoldSilver Central.

It is currently at 5-year highs, and any further push over 103.82 will send it to levels last seen in late 2002. [USD/]

The stronger dollar renders greenback-priced silver less desirable for currency holders.

The benchmark 10-year U.S. Treasury yields firmed also as investors waited for more clarity about the Fed’s “restrictive” policy to curb inflation and boost economic growth. [US/]

Rising U.S. interest rates short term and higher yields make gold highly vulnerable, increasing the risk of losing non-yielding currency. Gold can be used as an asset to protect value in times of economic or political crisis.

Investors have likely decided to leave gold behind, Lan stated, adding that the lack of an increase in gold prices despite the backdrop of the Ukraine conflict and high inflation has influenced demand.

Spot silver fell 0.8% to $23.09 an ounce. Platinum dropped 0.6% to $912.22. Palladium gained 1.5% at $2,234.98.

Yeap Jun Rong (a market strategist at IG) stated in a note that gold could fall to $1,850 in case it happens again.