NEW YORK: Gold rose more than 1% on Thursday as a contraction in the US economy boosted its safe-haven allure and helped to extend gains driven by a less aggressive tone from the Federal Reserve chairman.

The US economy unexpectedly contracted in the second quarter, with consumer spending growing at its slowest pace in two years and business spending declining, which could fan market fears that the economy was already in recession.

Spot gold extended gains on the data, and was last up 1.1% at $1,752.39 per ounce by 1:59 p.m. EDT (1759 GMT), helped along by a subsequent slide in US Treasury yields.

US gold futures settled 1.8% higher at $1,750.30.

After the GDP data confirmed recessionary fears, traders anticipate the Fed will be slower to introduce rate hikes, boosting the appetite for gold, Phillip Streible, chief market strategist at Blue Line Futures in Chicago, said.

Higher interest rates usually dull gold’s appeal because they increase the opportunity cost of holding the asset which bears no interest.