Spot gold advanced 1.4% to $4,190.49 an ounce during US trading, extending gains for a second consecutive session. The metal was heading towards a weekly increase of approximately 1.2%, recovering from a two-month low reached on Wednesday.
US gold futures for December delivery rose 1.4% to $4,215.60 an ounce, reflecting stronger demand after a turbulent trading week dominated by movements in energy prices, government bond yields and the dollar.
The recovery followed a decline in crude oil prices after President Donald Trump indicated that Washington would not launch military strikes against Iran before the US midterm elections in November. His remarks reduced immediate concerns about further disruptions to Middle Eastern energy supplies.
Lower oil prices helped ease expectations of additional inflationary pressure, allowing longer-dated Treasury yields to retreat from elevated levels. Falling bond yields generally support gold because the precious metal offers no interest payments and becomes comparatively more attractive when returns on government securities decline.
The dollar also softened during parts of Friday’s session, providing additional support to bullion. A weaker American currency makes dollar-denominated commodities less expensive for buyers using other currencies, potentially stimulating international demand.
Investors nevertheless remained cautious about the Federal Reserve’s monetary policy outlook. Persistent inflation has strengthened expectations that policymakers could raise borrowing costs again before the end of the year, potentially limiting gold’s recovery.
Market pricing indicated a comparatively low probability of an interest rate increase at the Federal Reserve’s October meeting, while expectations of tightening in December remained considerably stronger.
St Louis Federal Reserve President Alberto Musalem signalled that additional monetary tightening could be necessary to contain inflation, underscoring the continuing disagreement between improving financial market conditions and policymakers’ concerns about price stability.
The prospect of higher interest rates remains an important obstacle for bullion. Rising borrowing costs typically increase Treasury yields and support the dollar, reducing the relative appeal of assets that generate no regular income.
Gold’s advance also reflected bargain buying following Wednesday’s sharp decline. Investors returned to the market after prices approached the psychologically important $4,000-an-ounce level, where buying interest had begun to develop.
Rhona O’Connell, head of market analysis at StoneX, identified bargain hunting around lower price levels as an important factor behind the recovery. She also indicated that expectations of another Federal Reserve increase and continued central bank purchases were already reflected substantially in market valuations.
Her assessment suggested that sustained gains would require additional supportive developments, particularly given the competing influences of monetary tightening and official-sector demand.
The movement in gold coincided with continued volatility across global financial markets as investors assessed the implications of Middle Eastern tensions for energy supplies, inflation and economic growth.
Oil prices had risen sharply earlier in the week amid concerns about shipping disruptions and the possibility of further military escalation. Those increases pushed inflation expectations higher and contributed to selling pressure in government bonds.
The benchmark 10-year US Treasury yield had fallen to approximately 5.23% on Thursday as stronger demand at a government bond auction helped stabilise the market. Yields remained elevated, however, highlighting the constraints facing precious metals.
The Federal Reserve’s September interest rate increase and indications that further tightening remained possible had already contributed to substantial fluctuations in gold prices.
Central bank purchases continued to provide an underlying source of demand, although analysts cautioned that official-sector buying might not fully offset pressure from higher interest rates and a stronger dollar.
Physical demand presented a mixed picture. Elevated bullion prices restrained purchases in India, while holiday-related interruptions affected trading activity in China, two important markets for jewellery and investment gold.
Other precious metals participated in Friday’s recovery. Spot silver gained 2.6% to $60.89 an ounce, while platinum advanced 3% to $1,683.96 and palladium climbed 2.4% to $1,149.49.
Despite their daily gains, platinum and palladium remained on course for weekly declines, reflecting differing supply and demand conditions across precious metals markets.
Traders were also monitoring forthcoming US economic indicators for clearer evidence of whether inflation was moderating sufficiently to influence the Federal Reserve’s next decision. The October policy meeting remained a key reference point for expectations surrounding Treasury yields and the dollar.
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