Gold heads for best week in over 2 years on smaller rate hike hopes

(Reuters) – Gold prices were headed for their best week in more than two years after extending gains on Friday as signs of cooling inflation raised hopes that the Federal Reserve might temper its hawkish policy.

Spot gold was up 0.2% at $1,758.30 per ounce by 1244 GMT, after rallying more than 2% on Thursday as data showed U.S. consumer prices rose less than expected in October. U.S. gold futures gained 0.4% to $1,761.40.

“Yesterday’s weaker than expected CPI number has shifted the narrative when it comes to yields, along with the notable shift we’ve seen from recent Fed speakers,” said Michael Hewson, chief market analyst at CMC Markets UK.

Gold prices have risen 4.8% so far this week, and traders now see a 71.5% chance of a 50-basis-point rate hike at the Fed’s December meeting. <FED WATCH>

Rising rates increase the opportunity cost of holding non-yielding bullion, hence expectations of a smaller hike boost sentiment.

“Along with a technical break above the October highs, the likelihood of gold reaching $1,800 has become much more likely,” Hewson said.

The dollar index extended its decline, falling to its lowest in nearly three months, boosting gold’s appeal to overseas buyers.

U.S. 10-year Treasury yields dropped to one-month low on Thursday. Gold prices and Treasury yields move in opposite directions.

On the technical front, gold is trading above its 50-day and 100-day moving averages, which is considered a bullish signal by traders.

A spike in domestic prices put off gold consumers in India this week and prompted dealers to offer discounts, with higher rates playing spoilsport in China as well.

Elsewhere, spot silver fell 1.2% to $21.42 per ounce, but was still poised for its second straight weekly advance.

Platinum rose 0.8% to $1,040.25, and was headed for its biggest weekly gain since February 2021. Palladium jumped 1.5% to $1,993.70.