Gold prices surged to a near six-year peak on Thursday after the U.S. Federal Reserve bank signaled it was ready to cut interest rates as early as next month to boost growth, triggering a sharp fall in the dollar.
Spot gold jumped 2.2% to $1,390.38 per ounce by 1:32 p.m. EDT (1732 GMT). Prices touched $1,392.84, their highest since early September 2013.
U.S. gold futures settled 3.6% higher at $1,396.90 per ounce.
“More than the actual impact itself, was the shift in expectations,” said Ryan Giannotto, Director of Research at GraniteShares with reference to the Fed’s statement.
“Expectations were very high for the Fed and the market was forecasting this. But the real risk was that it would not satiate investors’ demand for dovishness.”
Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies.
The Fed on Wednesday signalled interest rate cuts beginning as early as July, saying it is ready to battle growing global and domestic economic risks as it took stock of rising trade tensions and growing concerns about weak inflation.
Top Chinese and U.S. officials will resume trade talks in accordance with the wishes of their leaders, after negotiations to reach a broad trade deal broke down last month.
“Gold has been supported of late by trade and growth uncertainties, which weakened the U.S. Dollar, caused bonds to rally and spurred equity market volatility,” UBS analysts said in a note.
“The Fed’s dovish pivot on interest rates has pushed the gold price to a 5-year high and toward the $1,400/oz mark.”
The dollar fell 0.5% against a basket of its rivals to 96.64, putting it on course for its biggest two-day drop since February 2018.
Gold in Australian dollars was at an all-time high.
“We believe the bullish market mood points to a short-term consolidation but still see the longer-term recovery on track. Later this year, gold should benefit from a weakening US dollar, followed by returning safe-haven demand next year,” Julius Baer analyst Carsten Menke said in a research note.
Silver was up 2% to $15.46 per ounce, its highest in over 12 weeks. Platinum dropped to $808.00 per ounce and palladium declined 0.8% to $1,488.50.
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