Gold is supported by the softer dollar and safe haven demand
Earlier in the session, gold hit a three-week peak, supported by a weaker US dollar and increased safe haven inflows. Spot gold rose about 1.3% this week while the dollar index (DXY) fell 0.4%, making gold more attractive to foreign investors. Geopolitical tensions also fueled demand, with Israeli airstrikes in Gaza and Russian drone strikes on Kiev adding to the uncertainty.
Analysts noted that concerns about inflationary pressures related to the expected policies of newly-elected US President Donald Trump are also increasing gold’s appeal. “Markets are considering the possibility of higher inflation as Trump’s policies could lead to trade wars and tariffs,” said Han Tan, chief market analyst at Exinity Group. Gold’s reputation as a hedge against inflation and geopolitical risks continues to support prices.
Fed policy and Treasury yields are impacting gold prospects
The Federal Reserve’s monetary policy remains an important factor for gold traders. After three rate cuts in 2024, the Fed has announced only two cuts for 2025, limiting downward pressure on the dollar. Government bond yields reflect this sentiment, with the 10-year bond ending 2024 at 4.5% after fluctuating throughout the year. Lower yields tend to support gold by lowering the opportunity cost of holding non-yielding assets.
Investors are closely watching economic data, including the ISM Manufacturing PMI, due out later on Friday. A reading above 50% indicates growth, potentially dampening gold’s momentum. Conversely, weaker data could strengthen the case for further rate cuts, supporting precious metals.