Gold rises on softer dollar, easing yields; Fed outlook in focus

Gold prices experienced a rise on Friday, buoyed by a weaker US dollar and decreasing Treasury yields, which enhanced the allure of the precious metal. Spot gold increased by 0.9% to $4,169.32 per ounce, following a two-month low reached on Wednesday. US gold futures also climbed by 0.9% to $4,194.40. The dollar's rally caused a pause, rendering gold more accessible to those holding currencies other than the US dollar. The benchmark 10-year Treasury yield, however, declined for a second consecutive day.

Tony Sage, CEO of Critical Metals, noted that potential tightening in the future could pose risks to gold, particularly given the high inflation fears fueled by rising oil prices due to potential supply disruptions in the Middle East. Nevertheless, Sage suggested that ongoing demand from central banks could mitigate losses.

Looking ahead, traders will monitor forthcoming economic data, which may offer additional insights into monetary policy and influence market sentiment prior to the Federal Reserve's October meeting. At the previous meeting, the US central bank unanimously decided to increase the policy rate by a quarter of a percentage point. St. Louis Fed President Alberto Musalem indicated that further rate hikes might be necessary to bring inflation back to its 2% target, though he refrained from specifying the course of action for the upcoming meeting.

Market participants are pricing in an 18% probability of a rate hike in October and an 82% likelihood of an increase in December, according to CME's FedWatch tool. Historically, gold has been considered a hedge against inflation; however, higher interest rates reduce its appeal as a non-yielding asset.

Apart from gold, silver, platinum, and palladium also saw gains. Silver rose by 1.1% to $60.00, platinum increased by 2.2% to $1,670.15, and palladium climbed by 2.1% to $1,146.98. However, all three metals were on track for weekly losses.