NEW YORK, Oct 18: Gold prices dropped 2 per cent on Friday, concluding a volatile week of selling, as a lack of confidence in the financial system and a dollar rally triggered heavy liquidation by commodity funds.

Gold’s status as a hedge against inflation was also weakened as investors fretted that a recession could not be avoided amid a deepening financial crisis.

The gold contract for Dec delivery settled down $16.80, or 2.1 per cent, at $787.70 an ounce on the COMEX division of the New York Mercantile Exchange.

Support from gold’s other main external driver, crude oil, was also waning. Oil prices jumped nearly $5 a barrel in early trade, but later pared their gains. November crude oil futures settled at $71.85 a barrel, up $2.

Rising crude prices boost interest in gold as a hedge against oil-led inflation.A bounce in equity markets, after sharp losses in the previous session, was also likely to cut some call for gold as a haven from risk.—Reuters