Gold jumps almost 2% on dollar retreat, dovish Fed stance

GOLD - JAKARTA. Gold rose almost 2% on Friday, on course for its first weekly gain in three, as the dollar retreated and the U.S. Federal Reserve's stance reinforced expectations of a prolonged low interest rate environment.

Spot gold was up 1.7% at $1,961.11 per ounce by 1149 GMT, taking gains this week to more than 1%. U.S. gold futures rose 1.9% to $1,969.40.

Fed Chairman Jerome Powell on Thursday said the central bank would adopt an average inflation target - meaning rates are likely to stay low even if inflation rises a bit in future.

"An environment where interest rates are low and inflation is gradually picking up works perfectly for assets like gold," said UBS analyst Giovanni Staunovo.

"We still expect prices to retest the $2,000 level and even go up to $2,300. Anything that pushes central banks' monetary policy towards loosening further could trigger that."

The dollar index fell 0.7% en route to its worst week in a month, rendering gold cheaper for investors holding other currencies.

Silver, meanwhile, gained 1.9% to $27.56 per ounce, on track for a second consecutive weekly rise, up 3.3%.

"Low interest rates for longer, a weaker dollar, massive amounts of stimulus and increased demand for inflation hedges are likely to continue to drive demand for both (gold and silver) metals," said Saxo Bank analyst Ole Hansen.

Fading hopes of a quick economic recovery amid the COVID-19 pandemic have compelled central banks to take an accommodative monetary policy stance, helping gold gain 28% this year, since lower interest rates decrease the opportunity cost of holding non-yielding bullion.

"The one event we're looking at is the U.S. elections. If (Donald) Trump loses and declines to accept the results to stay in the White House till January, that will be very positive for gold," said Quantitative Commodity Research analyst Peter Fertig.