Gold prices fell 1% on Friday and were set for their biggest weekly decline since mid-March, as hawkish comments from the head of the U.S. Federal Reserve boosted Treasury yields and the dollar and dented zero-yielding bullion's appeal.

Spot gold was down 1% to $1,931.71 per ounce at 1203 GMT, after touching its lowest level in two weeks. Prices are down 2% for the week. U.S. gold futures dipped 0.6% to $1,937.10 per ounce.

"We are dealing with the global economy where interest rate hike expectations continue to move up, as a result yields are moving higher and the dollar is trading stronger, all potential strong challenges to gold at this point," Saxo Bank analyst Ole Hansen said. However, "gold is holding within the established range... The reason being the market is worried that these very strong expectations for rate hikes in the U.S. may lead to a bigger than expected economic slowdown." Fed Chairman Jerome Powell said on Thursday a half-point interest rate increase "will be on the table" when the central bank meets in May. Benchmark U.S. 10-year Treasury yields extended gains on the Fed's hawkish tone in its effort to tame soaring inflation.

Meanwhile, the dollar index scaled a fresh peak since March 2020.

Gold is highly sensitive to rising U.S. interest rates and higher yields, which increase the opportunity cost of holding bullion, while boosting the dollar, in which it is priced. Rising interest rates are capping gold's upward potential, with the war in Ukraine providing strong support, Rupert Rowling, market analyst at Kinesis Money, said in a note.

"As such, gold is likely to trade in the $1,900 to $1,950 an ounce range over the medium-term." Spot silver fell 1.4% to $24.28 per ounce and was headed for its biggest weekly fall since late January, declining over 5%. Platinum shed 2.1% to $948.02 per ounce and palladium was 0.5% lower at $2,409.73.

(Reporting by Eileen Soreng in Bengaluru Editing by Mark Potter)