Gold advanced more than 1 per cent on Friday
on a combination of cooling oil prices and a softer US dollar,
with markets weighing the likelihood of further Federal Reserve
interest-rate hikes.
Spot gold rose 1.4 per cent to $4,189.99 by 0842 GMT, heading
for a weekly gain.
US gold futures for December delivery also added
1.4 per cent, trading at $4,215.30 per ounce.
Oil prices fell on Friday as worries over Middle East supply
disruptions subsided after US President Donald Trump said the
country would not attack Iran before the US midterm elections
next month, amid talks to end a war that has disrupted global
energy markets.
“This strengthens the case for a Fed hold this month,
weighing on the greenback and pulling yields back from their
highs, creating prime conditions for a bullion recovery,” said
Nikos Tzabouras, senior market analyst at Jefferies-owned
Tradu.com.
A softer dollar makes greenback-denominated bullion less
expensive for holders of other currencies.
However, Tzabouras added that gold continues to face a
challenging environment, leaving it vulnerable to renewed
declines.
“Macro-geopolitical uncertainty and inflationary pressures
persist, markets still expect Fed rate hikes ahead and bond
yields remain elevated, keeping the opportunity cost of holding
gold uncomfortably high.”
Gold is traditionally seen as a hedge against inflation, but
higher interest rates dim the appeal of the non-yielding asset.
St. Louis Fed President Alberto Musalem said on Thursday the
US central bank will need to hike rates again to bring inflation
back to its 2 per cent target, although he declined to say what
policymakers should do at their meeting later this month.
Last month, the US central bank voted unanimously to raise
the policy rate by a quarter of a percentage point.
Traders are pricing in a 19 per cent chance of a rate hike in
October and an 84 per cent probability of at least one 25-basis-point
increase by December, according to the CME’s FedWatch tool.
Among other metals, spot silver gained 1.7 per cent to $60.36
per ounce, platinum climbed 3.4 per cent to $1,690.49 and
palladium jumped 3.7 per cent to $1,162.18.