Gold rebounded over 2% on Friday, a day after a steep sell-off. This happened as the US dollar weakened and the US Federal Reserve signaled a prolonged low-interest-rate strategy. Spot gold rose 2.1% to $1,968.59 per ounce by 12:41 pm EDT (1641 GMT), taking gains this week to about 1.5%.
This was followed by a fall in prices as much as 2.2% on Thursday after US Treasury yields gained following Fed Chair Jerome Powell’s speech. US gold futures however, rose 2.5% to $1,980.90.
“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% target for some time seems like they are going to keep their monetary policy extremely loose, which should help gold.”
The central bank would adopt an average inflation target, Powell said on Thursday. This implies that rates are likely to stay low even if inflation rises a bit in 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% 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.
Further, falling of the dollar <.DXY> a more than one-week low has made gold cheaper for holders of other currencies, and was on track to post its biggest weekly percentage fall since end-July.
Also, silver rose 1.8% to $27.53 per ounce, on track for a second consecutive weekly rise. Platinum, too gained 0.1% to $929.49, while palladium rose 2.1% to $2,206.54.