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Gold price jumps to 2-week high as Fed maintains dovish tone

Image courtesy of the Federal Reserve Bank of Atlanta.

Gold prices jumped by more than 1% on Thursday after moving sideways over the past week, as investors reacted to the US Federal Reserve’s dovish messaging after keeping the benchmark interest rate near zero (as expected).

Spot gold was up 1.3% to $1,830.06 per ounce by noon ET, close to its highest since mid-July. US gold futures saw a larger gain of 1.7%, trading at $1,831.40 per ounce in New York.

[Click here for an interactive chart of gold prices]

On Wednesday, Fed chairman Jerome Powell stated that the central bank is “nowhere near considering a rate hike” despite the optimism about the economy.

He added that the US job market still has “some ground to cover” before it would be time to pull back support.

“You’re going to see inflation heat up moving forward because the Fed is more focused on employment and is not going to fight them in the near-term and that is a positive environment for precious metals,” David Meger, director of metals trading at High Ridge Futures, told Reuters, adding:

“This is not a flash-in-the-pan type rally but a more sustainable one because nothing is standing in gold’s way.”

Reinforcing Powell’s views, data showed the US economy grew at a 6.5% annualized rate last quarter, below a forecast for an 8.5% rise by economists in a Reuters poll.

A dovish tone from the Fed is good news for gold, as lower interest rates reduce the opportunity cost of holding non-yielding bullion.

Adding to gold’s support, the dollar index slipped to a one-month low, making gold less expensive for holders of other currencies.

“Rising monetary policy uncertainty, inflation and increasing risk of equity market volatility should favour demand for safe-haven assets,” ANZ Research said in a note.

Meanwhile, global demand for gold rose in the second quarter to its highest quarterly level in a year as central banks and investors stepped up purchases, according to the World Gold Council’s quarterly report.

(With files from Reuters)