Gold holds near one-year highs as Fed seen pausing rates

Gold is considered a hedge against inflation and economic uncertainties, but higher interest rates dim non-yielding bullion’s appeal.

Gold prices held near one-year highs on Friday as recent U.S. economic data reinforced hopes that the Federal Reserve was close to the end of its rate-hiking cycle, which drove non-yielding bullion towards a second straight weekly rise.

Spot gold fell 0.2% to $2,035.49 per ounce by 0935 GMT, with prices holding just below last session’s highs since March 9. U.S. gold futures fell 0.3% to $2,049.40.

Gold is lower in the session as the opportunity cost of holding bullion is high since bond yields are rising, said Peter Fertig, an analyst with Quantitative Commodity Research.

Euro zone yields were near a month-high as focus shifted to the European Central Bank’s tightening path, with ECB officials mentioning the chance of a 50 bps rate hike in May.

The Fed meanwhile considered a rate-hike pause in March in the face of the sudden collapse of two U.S. regional lenders, yet inflationary pressures were seen as more important. The collapse pushed bullion over $2,000.

Since SVB, gold had been firmly re-establishing its primary role as a hedge against risk, StoneX analyst Rhona O’Conell said.

Gold is considered a hedge against inflation and economic uncertainties, but higher interest rates dim non-yielding bullion’s appeal.

Limiting gold’s losses, the dollar slid to a one-year low after data this week showed consumer price index rose less than expected and boosted hopes for a Fed pause.

Investors await U.S. retail sales later in the day and gold could head towards its all-time high, should the data come in soft enough, said Matt Simpson, a senior market analyst at City Index.

Spot silver rose 0.4% to $25.90 per ounce, rising to a year-high of $26.07 earlier in the session, and is set for a fifth-weekly high.

Platinum fell 0.2% to $1,045.29 while palladium was down 0.1% to $1,497.14, both due for weekly rises as well.