Gold heads for biggest weekly gain in two months, silver jumps

By Chris Prentice and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold prices hit two-week highs on Friday and were poised for their biggest weekly jump since mid-January, after the U.S. Federal Reserve's cautious note on interest rates arrested a dollar rally and sparked broad-based buying of commodities.

The U.S. currency fell as much as 1.8 percent against a basket of major currencies <.DXY> on Friday, after the Fed downgraded its growth and inflation projections earlier in the week, signalling it is in no rush to push borrowing costs to more normal levels. [FRX/]

Spot gold > was up 1.2 percent at $1,184.55 an ounce by 1:55 p.m. EDT (1755 GMT) after hitting $1,187.80, and U.S. gold futures for April delivery closed up $15.60 an ounce at $1,184.60.

 

"Today's run is part of a broad-based correction with the dollar weakness," said Eli Tesfaye, senior market strategist for RJO Futures in Chicago.

Spot gold has risen over 2 percent this week, recovering from a four-month low touched on Tuesday under pressure from expectations that the U.S. central bank is on track for its first interest rate increase in nearly a decade.

Such a move would boost the dollar and lift the opportunity cost of holding non-yielding bullion. The Fed, however, indicated it preferred a more gradual path.

"We obviously saw a slight change in sentiment earlier this week, with Janet Yellen apparently joining an ever-increasing number of central bank doves," Saxo Bank's head of commodity research Ole Hansen said, referring to the Fed chief.

"I think we will settle into a $1,150 to $1,190 range for now."

Post-Fed, the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares , saw its first inflows since Feb. 20, also boosting sentiment. [GOL/ETF]

In the physical markets, Chinese buying was steady, with premiums on the Shanghai Gold Exchange staying at a robust $6-$7 an ounce on Friday. Sustained physical buying could further support prices.

Silver > outperformed other precious metals to hit 1-high of $16.89 an ounce and was up 4.7 percent at $16.85, and spot platinum > was up 1.5 percent at $1,139.70 an ounce.

Platinum continued to trade at a roughly $50 discount to gold, a factor that is likely to stoke physical demand according to the Perth Mint, which is ramping up production of its platinum coins.

Palladium > was up 1.2 percent at $773.98 an ounce, though it was the worst-performing precious metal of the week, down nearly 2 percent.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Chizu Nomiyama)