Gold prices rose 1 percent to a 3-1/2-month high on Thursday after minutes from the latest Federal Reserve policy meeting further dampened expectations for an interest rate hike in March, lowering U.S. bond yields and pressuring the dollar. Spot gold was on track for its biggest daily gain since Feb. 6, and was up 1 percent at $1,249.36 an ounce by 2:28 p.m. EST (1928 GMT), after rising to $1,251.14 an ounce, its highest since Nov. 11. U.S. gold futures settled up 1.5 percent at $1,251.40. “The dollar’s backed off, bond yields have backed off, and that’s given a bit of support for gold,” said Robin Bhar at Societe Generale.
A weaker dollar makes gold cheaper for holders of other currencies, while lower yields reduce the opportunity cost of holding non-yielding bullion. Higher interest rates would lift yields. Gold had been trapped in a range of around $1,220-$1,240 since early February, with unease over the European and U.S. political outlook supporting demand for bullion as a safe haven while the prospect of rising interest rates kept a lid on gains. “Gold investors should be paying close attention to upcoming European elections,” said Walter Pehowich, executive vice president in charge of precious metals investments services for Dillon Gage Metals.
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Pehowich noted that Marine Le Pen, leader of the French National Front party, has increased her lead in the first round of France’s presidential election and has said she will put together a referendum for France to exit the European Union if elected. The move higher in gold prices could, however, be derailed if U.S. stocks continue their rally, enticing investment away from gold, said Jonathan Butler at Mitsubishi. “This may in hindsight look like a one-day wonder,” he said.
Investors were looking ahead to an address by U.S. President Donald Trump to Congress on Feb. 28. “Currencies, the bond market, gold, will all take their cue from what he says on Tuesday,” Bhar said. More details on promised government spending, infrastructure investment or tax cuts would likely push the dollar and U.S. asset prices higher and gold lower. “Should Trump become the feared ‘unguided missile’, which we still believe is unlikely, safe-haven demand would increase even more,” Julius Baer analyst Carsten Menke said in a note. Silver was up 0.8 percent at $18.17 an ounce. Platinum was 0.7 percent higher at $1,009.90 an ounce, and palladium was up 0.3 percent at $770.75.