Gold prices dipped on Friday and were set for a third straight weekly drop, as investors fretted about more rate hikes by the U.S. Federal Reserve after a slew of strong economic data.

Spot gold was down 0.6% at $1,827.09 per ounce, as of 0548 GMT, after earlier falling to its lowest since early January. Bullion has fallen about 2% so far this week. U.S. gold futures slipped 0.9% to $1,835.70.

Gold is considered an inflation hedge, but higher interest rates increase the opportunity cost of holding non-yielding bullion.

This week's data showing stronger U.S. retail sales and high consumer prices "seems to be fuelling a reassessment... markets think the Fed will go into a more hawkish setting, and that is very bad for gold," said Ilya Spivak, head of global macro at Tastylive.

Real interest rates have rebounded against this backdrop, so non-yielding gold has been down, Spivak said.

Several Fed officials this week echoed that the monetary policy needed to remain tight to bring inflation down to the central bank's 2% target.

Two Fed officials said on Thursday the U.S. central bank likely should have lifted interest rates more than it did early this month.

Data on Thursday showed U.S. monthly producer prices rebounded 0.7% last month. Meanwhile, the number of Americans filing new claims for unemployment benefits slipped to 194,000 for the latest week.

Money markets now expect benchmark rates to rise above 5% by May and stay at those levels through the year.

The dollar index surged to a six-week high. Gold competes with the dollar as a safe store of value, and gains in the currency make bullion less attractive for overseas buyers.

Benchmark 10-year Treasury yields hit their highest since late December.

Spot silver lost 0.7% to $21.45 per ounce, platinum was 0.4% lower at $916.93 and palladium shed 1.3% to $1,491.38. (Reporting by Kavya Guduru in Bengaluru; Editing by Rashmi Aich and Subhranshu Sahu)