LONDON
Gold eased from a three-week high on Friday as the dollar index bounced from a three-year low, but the metal remained on track for its biggest weekly gain in nearly two years on the back of weakness in the US currency and inflation concerns.
The dollar hit its lowest since 2014 in overnight trade and despite bouncing back into positive territory was heading for its biggest weekly loss in two years as negative sentiment offset support from rising Treasury yields.
Spot gold was at $1,352.46 an ounce at 1435 GMT, little changed from Thursday but off an earlier three-week peak of $1,361.76. US April gold futures were also steady at $1,354.70, off a high of $1,364.40.
“We’re looking for the dollar to keep weakening. For me that’s the key thing to watch for gold,” said Daniel Smith, director of commodity services at Oxford Economics. “Gold tends to do particularly well in that kind of environment.”
Signs of rising inflation were also helping to drive the metal higher, he said. “If inflation expectations rise faster than nominal rate expectations, then this should add fuel to the fire, particularly in an environment of US dollar weakness.”
Spot gold has risen 2.7 per cent so far this week, putting it on track for its biggest weekly rise since April 2016. Gold has fared less well in other currencies, rising 1 per cent in euro terms and 1.4 per cent in sterling.
The dollar hit a three-year low versus a currency basket on Friday, hurt by concerns that Washington might pursue a weak-dollar strategy and the perceived erosion of its yield advantage as other countries consider tighter monetary policy.
Data this week showed US producer prices accelerated in January, while initial claims for state unemployment benefits increased in the week to Feb. 10.
On the physical side of the market, demand in Asia was muted by the Lunar New Year holiday, closing markets in major consumer China as well as in South Korea, Malaysia and Vietnam.
In India, physical gold was sold at a discount for the first time in three weeks as demand slumped because of a jump in local rates. Gold in rupee terms hit a 15-month high of 30,836 rupees on Friday.
Demand was down to a quarter of usual levels as buyers were deterred by the recent price rise, said Harshad Ajmera, owner of wholesaler JJ Gold House in Kolkata.
Among other precious metals, silver was down 0.7 per cent at $16.75, while platinum gained 0.3 per cent to $1,003.70 after hitting its highest since Jan. 29 at $1,012.70.
Palladium was up 1.4 per cent at $1,032.22. It has risen 5.8 per cent this week, its best since October.
