Gold rally continues on weaker dollar, inflation fears

Bengaluru — Gold was headed on Friday for its biggest weekly gain in more than three months, steadying near a nine-year high, as it benefited from a weak dollar and inflation expectations, fuelled by stimulus for virus-battered economies.

Silver eyed its best week since 1987, with additional impetus coming from bets for a revival in industrial activity.

Spot gold was up 0.1% at $1,889.24/oz by 4.10am GMT, having hit its highest since September 2011 at $1,897.16/oz on Thursday. Prices have risen more than 4% this week, putting gold on course for its longest winning streak since late 2011.

“We’re seeing a very explosive week for gold,” said DailyFx currency strategist Ilya Spivak.

“The basic logic has to do with the introduction of further fiscal stimulus … in the EU, and we’re talking again about further fiscal stimulus in the US.

“Interest rates are not really expected to go higher, and the likely response is seen as inflation.”

Gold tends to benefit from widespread stimulus measures from central banks as it is perceived as a hedge against inflation and currency debasement.

The dollar index held near a two-year low with investors also awaiting Beijing’s response to the US move to close its Houston consulate this week.

The tensions also prompted investors to seek safety in bullion. Despite the bullishness, downside risks remain for gold.

Demand for jewellery remains soft at prices above $1,800/oz in major retail markets India and China, and gold has to be content with investment demand to push prices,” analysts at Phillip Futures said in a note.

US gold futures eased 0.3% to $1,884.60/oz. Low physical demand has been forcing dealers in India and China to offer hefty discounts. Spot gold may retest a support at $1,880/oz, Reuters technical analyst Wang Tao said.

Silver, which fell 0.5% to $22.60/oz, was up more than 17% for the week. Platinum rose 0.1% to $906.41/oz and palladium gained 0.8% to $2,142.25/oz.

Reuters