Gold Near 3-Week Peak on Fed Rate Cut Bets, US Inflation Test Looms

GOLD - SINGAPORE. Gold prices hit their highest level in nearly three weeks on Friday as rising bets on Federal Reserve interest rate cuts early next year pushed the dollar and bond yields lower ahead of eagerly awaited U.S. inflation data.

Spot gold was up 0.2% at $2,049.20 per ounce, as of 0513 GMT, after hitting its highest since Dec. 4 earlier in the session. Bullion has risen 1.6% so far this week.

U.S. gold futures rose 0.5% to $2,061.40 per ounce.

"U.S. real yields have been ticking downwards because of increasing expectations for the first rate cut from the Fed to come in March and that is a positive catalyst for gold prices right now," said Kelvin Wong, a senior market analyst for Asia Pacific at OANDA.

"Also, there is some safe-haven buying coming due to issues in the Red Sea."

The dollar index languished near a five-month low, making gold more attractive to other currency holders, while the benchmark U.S. 10-year bond yields hovered near their weakest level since July.

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Traders are now pricing in an 83% chance of a U.S. rate cut by March, according to the CME FedWatch tool. Lower interest rates decrease the opportunity cost of holding non-yielding bullion.

Fed officials have been pushing back against the idea of rapid rate cuts next year, but these remarks have done little to change investor sentiment.

All eyes are now on the November core personal consumption expenditure (PCE) price index report, the Fed's preferred measure of underlying inflation, due at 1330 GMT, for more clarity on the U.S. rate outlook.

Market participants expect the index to have risen 3.3% on an annual basis, compared to October's 3.5%.

Silver gained 0.2% to $24.44 per ounce. Platinum rose 0.3% to $965.79 and palladium fell 0.7% to $1,205.26. All three metals were on track for their second consecutive weekly gains.