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Gold prices surged to their highest in more than five years on Thursday after the U.S. Federal Reserve signalled a possible interest rate cut as early as next month, pressuring U.S. Treasury yields and the dollar.
Spot gold was up 1.7% at $1,382.61 per ounce, after hitting its highest since March 17, 2014 at $1,386.38 earlier.
Gold prices have gained about $80 so far this month.
U.S. gold futures jumped 2.8% to $1,386.30 an ounce, after touching their highest since April 2018 at $1,397.70.
"The driver for the surge is obviously the Fed delivering the dovish tilt that the market was looking for. It removed the 'patience' approach to cutting rates," said Saxo Bank commodity strategist Ole Hansen said.
The U.S. Federal Reserve on Wednesday signalled interest rate cuts beginning as early as July, saying it is ready to battle growing global and domestic economic risks as it took stock of rising trade tensions and growing concerns about weak inflation.
Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies.
The Fed's rate signal came before meetings at other major central banks in Asia and Europe that were expected to flag similar moves. The European Central Bank and the Australian central bank had signalled this week more policy stimulus was needed.
"The main reason why we are seeing interest rate expectations being reduced so dramatically is because economic data is not moving up to previous strength and that has also raised questions of how much further stock markets could continue to benefit from these rate cuts," Hansen said.
Even though the U.S. central bank left its benchmark interest rate unchanged for now, the shift in the Fed's view since its last policy meeting weighed on the dollar and U.S. Treasury yields.
"The (gold's) move higher looks constructive for a further test toward $1,400 as participants focus upon the Fed's dovish skew, with potential targets extending toward $1,450 should near-term support around $1,375 remain intact," MKS PAMP Group said in a note.
Meanwhile, China's commerce ministry said on Thursday top Chinese and U.S. officials would resume trade talks in accordance with the wishes of their leaders, but China hopes the United States will create the necessary conditions for dialogue.
"The short term headwinds (for gold) will be if we see a trade deal being reached between U.S. and China that may just ease some of the worries about global growth and also the need for the rates to be cut aggressively," Saxo Bank's Hansen said.
Palladium gained 1.3% to $1,520.54 per ounce, having hit a 12-week high of $1,531.38 earlier in the session.