Gold surges over 2% on waning dollar, Fed policy shift

[NEW YORK] Gold rebounded over 2 per cent on Friday, a day after a steep sell-off, as the US dollar weakened and the US Federal Reserve signalled a prolonged low interest rate strategy.

Spot gold rose 1.8 per cent to US$1,964.47 per ounce by 1825 GMT, taking gains this week to about 1.3 per cent.

Prices fell as much as 2.2 per cent on Thursday after US Treasury yields gained following a speech by Fed Chair Jerome Powell on the strategy.

US gold futures settled up 2.2 per cent at 1,974.90.

"The sizeable sell-off in the greenback has propped up gold," said David Madden, market analyst at CMC Markets UK.

"The Fed said it can allow inflation to run above its 2 per cent target for some time seems like they are going to keep their monetary policy extremely loose, which should help gold." The dollar fell to a more-than one-week low, making gold cheaper for holders of other currencies, and was on track to post its biggest weekly percentage fall since end-July.

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Mr Powell said on Thursday the central bank would adopt an average inflation target, meaning rates are likely to stay low even if inflation rises a bit in the future.

On the other hand, global central banks and governments have pumped massive stimulus into the market to prop up their coronavirus-damaged economies, helping gold gain over 28 per cent this year.

"The shift in Fed policy will mostly likely reignite 'the inflation trade', which has historically been bullish for hard assets (like gold)," Kitco Metals senior analyst Jim Wyckoff said in a note.

Low interest rates tend to support gold, which is also a hedge against inflation and currency depreciation.

Silver rose 1.6 per cent to US$27.48 per ounce, on track for a second consecutive weekly rise.

Platinum eased 0.1 per cent to US$927.83, while palladium rose 2.4 per cent to $2,211.96.

REUTERS