Gold prices were set on Friday for a weekly gain, as prospects of the US Federal Reserve lowering borrowing costs next year dented the dollar and Treasury yields, boosting demand for the safe-haven asset.

Spot gold held its ground at $2,035.88 per ounce, as of 0239 GMT, and has risen 1.6% so far in the week. US gold futures rose 0.3% to $2,050.

“The prospect of (rate) cuts is very bullish for gold - lower yields boost the attractiveness of gold and if the cuts are coming because of a looming recession, then that just sweetens things for gold,” said Kyle Rodda, a financial market analyst at Capital.com.

“In the very near-term, gold is at risk from a reversal in yields - bonds are a bit overbought technically. In the long-run, the rate-cut story augurs very well for gold.”

The Fed left interest rates unchanged on Wednesday and Chair Jerome Powell said the historic tightening of monetary policy is likely over, with a discussion of cuts in borrowing costs coming “into view”.

Fed officials estimated 75 basis points (bps) of rate cuts in 2024, with 2.4% inflation at the end of next year. Markets are now pricing in around a 75% chance of a rate cut in March, according to CME FedWatch tool.

Lower US interest rates put pressure on the dollar and bond yields, and increase the appeal of non-yielding bullion.

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The dollar was heading for a weekly drop after hitting a four-month low on Thursday, making gold less expensive for other currency holders.

Benchmark US 10-year bond yield, meanwhile, hovered near its lowest level since July. Silver eased 0.2% to $24.08 per ounce, while platinum gained 0.1% to $958.87.

Both metals were on track for weekly gains. Palladium slipped 0.5% to $1,096.86, but was headed for its best week since March 2022, up 15.5% so far this week.