Softer dollar sets gold for its best week since mid-January

Stacked gold bars
Akos Stiller | Bloomberg | Getty Images

Gold prices climbed to their highest in nearly two weeks on Friday, and are on track for their biggest weekly rise since mid-January, on the back of a softer dollar as investors gauged the U.S. central bank's policy path.

Spot gold was up 0.6% at $1,847.25 per ounce, its highest level since Feb. 20. Prices have risen about 2% so far in the week. U.S. gold futures advanced 0.7% to $1,853.50.

The U.S. dollar index is headed for a weekly drop, making the greenback-priced bullion more attractive to overseas buyers.

Gold has managed to find good support around the $1,800 levels and if there is a break above $1,865, there will be some fresh demand, said Ole Hansen, head of commodity strategy at Saxo Bank.

"If we see any signs of weakness in economic data and it results in lower rate hike expectations, it will be supportive of gold," said Hansen.

Atlanta Fed President Raphael Bostic said on Thursday the impact of higher U.S. rates on the economy may only begin to "bite" in earnest this spring, an argument for the U.S. central bank to stick with "steady" quarter-point rate increases.

Despite gold being known as an inflation hedge, rising interest rates raise the opportunity cost of holding zero-yield bullion and make it a less attractive bet.

Meanwhile, data on Thursday showed the number of Americans filing new claims for unemployment benefits fell again last week, pointing to sustained labor market strength.

Fitch Solutions in a note said it expects significant gold price volatility in the longer term.