Gold prices rose 1 percent to their highest in more than two weeks on Thursday as US bond yields declined on waning risk appetite, reducing the US dollar's appeal against safe-haven currencies such as the Japanese yen. Bullion bounced back on Thursday after hitting a 10-month low on Dec. 15 as solid US economic data gave the US Federal Reserve the confidence to raise interest rates for the first time in a year.
"Gold is not out of the woods yet but yields are a bit lower and the dollar is weaker, especially against the yen and yen-gold has showed a phenomenal correlation since the US election," Ole Hansen, SaxoBank's head of commodity research, said. Gold fell more than 8 percent in November as US Treasury yields rose after Donald Trump's election led to speculation his commitment to infrastructure spending would spur growth.
Spot gold hit $1,159.50 an ounce during the session, the highest since Dec. 14, and was up 1.2 percent at $1,155.45 by 2:32 pm EST (1451 GMT). The metal also notched its biggest daily percentage gain since late September. US gold futures ended the session up 1.5 percent at $1158.1 an ounce.
The dollar fell 0.7 percent against a basket of six main currencies, mostly due to the yen's strength and profit taking after recent gains. The benchmark 10-year US Treasury yield slipped to two-week lows as the bond market sell-off fizzled. The US central bank has signalled that it expected three more increases next year, up from a previous projection of two.
Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding assets, while boosting the dollar, in which it is priced. However, gold prices are still 8 percent higher than at the start of the year and were heading for the first annual increase after three years of declines.
"The outlook projected by the US Federal Reserve along with the strong employment figures indicate positive growth for the economy as justified with the interest rate hikes. Hence gold has underperformed, and could close at under $1,145 this year," said Mihir Kapadia, chief executive of Sun Global Investments.
However, if the incoming US administration implements inward looking policies, gold may touch $1,500 per ounce, propelled by investor fears, he said. Gold is usually seen as a refuge from riskier assets such as equities. China's net gold imports in November via its main conduit Hong Kong dropped 17.8 percent from October to the lowest in 10 months, data showed on Thursday. Among other precious metals, silver was up 0.62 percent at $16.11 an ounce. Platinum was 0.2 percent lower at $895.49, while palladium climbed 1.09 percent to $672.47 an ounce.