Gold rises to two-week high as dollar dives

Gold prices jumped more than 1% on Tuesday to a near two-week high, following the steepest fall in dollars in more than two years as investors bet on U.S. interest rates staying lower for longer.

Spot gold XAU= was up 0.9% to $1,987.89 per ounce by 0947 GMT, having earlier hit its highest since Aug. 19 at $1,991.91. U.S. gold futures GCcv1 rose 0.9% to $1,996.10.

“The two drivers for gold are the weaker dollar and lower yields and that will keep the metal moving between the range of $1,800 and $2,100 until the U.S. presidential elections in November,” said Robin Bhar, an independent analyst.

“However, at the end of every month we might see some corrections as a result of speculators selling their positions.”

The dollar index .DXY dropped to a more than two-year low versus rivals, making gold cheaper for holders of other currencies. USD/

The U.S. Federal Reserve’s new monetary policy plan, which may lead to inflation rising marginally and long-term interest rates staying lower, also weighed on U.S. Treasury yields. (Full Story) (Full Story)

Low interest rates minimise the opportunity cost of owning non-yielding bullion, which is often used as a buffer against inflation and currency depreciation.

Gold has gained about 31% this year, also supported by economic uncertainty stemming from the coronavirus pandemic.

While waning consumer demand remains a headwind, “strong investor demand is likely to continue to provide support for gold,” Heraeus Precious Metals said in a note.

“In the near term, gold could move sideways as it consolidates following its rapid rally to record highs in early August.”

Elsewhere, silver XAG= was up 2.1% to $28.82 per ounce, after hitting its highest since Aug. 11.