Gold set for best week in over two years on smaller rate hike hopes

By Arundhati Sarkar

(Reuters) - Gold prices were headed for their best week in more than two years, as they extended gains on Friday on hopes the Federal Reserve might pivot to a less hawkish policy amid signs of cooling inflation.

Spot gold was up 0.4% at $1,762.19 per ounce by 0916 GMT, after rallying more than 2% on Thursday as data showed U.S. consumer prices rose less than expected in October. U.S. gold futures gained 0.7% to $1,765.40.

"Yesterday's weaker than expected CPI number has shifted the narrative when it comes to yields, along with the notable shift we've seen from recent Fed speakers," said Michael Hewson, chief market analyst at CMC Markets UK.

Gold prices have risen about 5% so far this week, and traders now see a 71.5% chance of a 50-basis-point rate hike at the Fed's December meeting.

Higher rates increase the opportunity cost of holding non-yielding bullion, so expectations of a smaller rate hike boost sentiment.

"Along with a technical break above the October highs, the likelihood of gold reaching $1,800 has become much more likely," Hewson said, adding that trading was likely to remain choppy and the U.S. dollar could weaken further from here.

The dollar index extended its decline, falling to its lowest in nearly three months, making gold more attractive for overseas buyers.

U.S. 10-year Treasury yields dropped to one-month low on Thursday. Gold prices and Treasury yields move in opposite directions.

On the technical front, gold is trading above its 50-day and 100-day moving averages, which is considered a bullish signal by traders.

Elsewhere, spot silver rose 0.6% to $21.79 per ounce and was poised for its second straight weekly advance.

Platinum rose 2.2% to $1,054.38, and was headed for its biggest weekly gain since February 2021. Palladium rose 2.98% to $2,023.13.

 

(Reporting by Arundhati Sarkar in Bengaluru; Editing by Vinay Dwivedi)