Gold prices recouped losses to rise nearly 1% on Wednesday as the dollar slid after US Federal Reserve Chairman Jerome Powell fanned expectations of an interest rate cut, citing risks to the US economy. Powell said concerns about trade policy and a weak global economy "continue to weigh on the US economic outlook" and the Fed intended to "act as appropriate" to sustain a decade-long expansion. Spot gold rose 0.8% to $1,408.40 per ounce as of 11:28 am ET (1528 GMT), having made its way to a high of $1,411 an ounce. Prices had dropped to $1,389.55 earlier in the session.
US gold futures for August delivery rose 0.7% to $1,410.30 per ounce.
"Powell's done enough to convince traders he is not closing the door but leaving it ajar with regards to rate cuts referencing a weaker economy, referencing business growth and stagnating economic growth," said Craig Erlam, senior market analyst with OANDA.
"This is as dovish as we could have potentially hoped for and the gold market has jumped straight on that. The dollar has come off and gold in tandem has rebounded higher."
Although expectations for a 50-basis-point rate cut at a Fed meeting later this month have evaporated after forecast-beating job gains were reported last week, investors still expect a 25-basis-point cut due to weak inflation and worries about growing business fallout from the US-China trade war.
Powell's comments also prompted the dollar index to decline as much as 0.3% against a basket of other currencies, after rising to a three-week high in the previous session.
"We still think there are upside risks and dips towards $1,375 and below $1,375 are an opportunity to go long in gold," said Suki Cooper, precious metals analyst at Standard Chartered Bank.
"The macro factors are still supportive (of gold) but the near term headwinds are likely to come from weaker physical markets and any temporary bouts of dollar strength or a bounce in yields."
On the trade war front, US and Chinese trade officials held "constructive" talks on trade by phone on Tuesday, White House economic adviser Larry Kudlow said on Tuesday. Other precious metals also rose, with silver was up 0.2% at $15.13 and platinum gained 2.4% to $825.43 per ounce.
Palladium was 2.5% higher at $1,585.54 per ounce, having hit $1,598 earlier in the session, its highest since March 22. The supportive macro backdrop has just exacerbated the upside risk for palladium in an already tight market, Cooper said.