By Ashitha Shivaprasad and Deep Kaushik Vakil
(Reuters) – Gold surged to a seven-month peak on Friday after remarks from Federal Reserve Chair Jerome Powell increased traders’ confidence the U.S. central bank had completed its monetary policy tightening and could cut rates early next year.
Spot gold climbed 1.2% to $2,060.69 per ounce by 12:35 p.m. ET (1735 GMT), its highest since May 4. Prices were about 3% higher so far this week.
U.S. gold futures rose 1.1% to $2,080.60.
Powell’s remarks reaffirmed the U.S. central bank’s intent to be cautious in its upcoming monetary policy decisions but said the Fed is not thinking about lowering rates right now.
“Gold bulls are focusing on Powell’s comment that rate is well into restrictive territory which plays into the narrative that cuts will come sooner, pointedly ignoring his warning that it was premature to speculate on easing rates,” Tai Wong, a New York-based independent metals trader.
Traders were pricing in a 60% chance of a rate cut in March versus 50% before the speech, CME’s FedWatch Tool showed.
Lower interest rates reduce the opportunity cost of holding zero-yield gold.
But, “prices may have entered overbought territory and gold has been known to price in monetary policy expectations prematurely over the past two years,” Standard Chartered analyst Suki Cooper said in a note.
Boosting bullion’s appeal, benchmark 10-year Treasury yields slipped to a two-and-a-half month low and the dollar ticked 0.2% lower. [USD/] [US/]
“Gold has had a Santa Claus rally and I expect that to continue until the end of this year. It is certainly within the realm of possibility that gold re-tests record highs,” said Everett Millman, chief market analyst at Gainesville Coins.
Silver gained 0.6% to a more than six-month high at $25.39 per ounce, set for a third consecutive weekly rise.
Platinum rose 0.1% to $928.09 and palladium lost 0.2% to $1,006.34.
(Reporting by Anushree Mukherjee, Ashitha Shivaprasad and Deep Vakil in Bengaluru; Editing by Elaine Hardcastle and Barbara Lewis)
