Gold hits one-week high on hopes of Fed rate cuts

A weaker U.S. currency makes dollar-priced gold less expensive for holders of other currencies.

Gold prices rose to a more than one-week high on Wednesday as U.S. dollar and Treasury yields weakened after cooler inflation data boosted bets that U.S rate cut might come sooner than earlier priced in by investors.

Spot gold rose 0.5% at $1,971.60 per ounce as of 1037 GMT, its highest since November 7. U.S. gold futures also gained 0.5% to $1,976.10.

Investors now await U.S. retail sales and producer price figures due at 1330 GMT. Economists polled by Reuters are forecasting producer prices rose 0.1% last month, compared with a 0.5% increase in September.

"After yesterday's softer-than-expected inflation, today's data release could compound the losing streak for the U.S dollar, should the figures fall below expectations. Against this background, risk is on the upside for gold," said ActivTrades senior analyst Ricardo Evangelista.

Data on Tuesday showed that U.S. consumer prices were unchanged in October, with the annual rise in underlying inflation the smallest in two years.

Following the CPI data, the dollar fell to an over two-month low and benchmark U.S. 10-year Treasury yields fell to their lowest level since Sept. 22.

A weaker U.S. currency makes dollar-priced gold less expensive for holders of other currencies.

Investors now see little chance of another rate hike at the Fed’s December meeting, while bets on a rate cut in May 2024 year firmed to around 50% compared with 34% before the data, according to the CME Group's FedWatch Tool.

”I can see further upside for gold. However, this upside may be capped by fading fears of an escalation of the war in Gaza, which had driven safe-haven gains over the last month,” said Evangelista.

Lower U.S. interest rates make non-yielding gold more attractive.

Spot silver rose 1.3% to $23.37 per ounce, while platinum firmed 0.6% to $890.38. Palladium was up 1.7% to $1,033.84 per ounce.