Gold hits 2-week high on hopes of smaller U.S. rate hikes

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By Ashitha Shivaprasad

(Reuters) - Gold touched a two-week high on Thursday, supported by a weaker dollar after U.S. Federal Reserve Chair Jerome Powell's speech sparked expectations of smaller interest rate hikes ahead.

Spot gold rose 0.4% to $1,774.62 per ounce, as of 0241 GMT, and hit its highest level since Nov. 16. U.S. gold futures climbed 1.6% to $1,788.70.

The dollar index inched 0.3% lower. A weaker greenback makes gold more attractive for overseas buyers.

Powell effectively confirmed that the Fed will slow its pace of tightening, prompting the U.S. dollar lower and gold higher, said City Index Analyst Matt Simpson.

Powell in his speech on Wednesday also signalled a protracted economic adjustment to a world where borrowing costs will remain high, inflation comes down slowly, and the U.S. remains chronically short of workers.

Market participants now expect a 91% chance of a 50 basis points rate hike in the U.S. central bank's upcoming December meeting.

Lower rates tend to boost bullion's appeal as it reduces the opportunity cost of holding the non-yielding asset, which ended November more than 8% higher — its biggest monthly gain since July 2020.

Investors' attention now turns to the U.S. Labor Department's non-farm payrolls data on Friday, which could influence Fed's policy decisions.

"A strong employment report will give Fed the green light to keep hiking whilst inflation remains high, which is bad for gold. A weak report could be beneficial for gold as it points to lower consumer demand ahead, which is deflationary," added Simpson.

Meanwhile, U.S. private payrolls increased far less than expected in November, suggesting demand for labour was cooling amid high interest rates, a survey showed on Wednesday.

Spot silver edged up 0.2% to $22.24, platinum rose 0.7% to $1,040.13 and palladium gained 0.9% to $1,897.63.

(Reporting by Ashitha Shivaprasad in Bengaluru; editing by Uttaresh.V)


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