Spot Gold Hits 2-Week High As Dollar Weakens

Gold prices rose on Tuesday to their highest level in nearly two weeks, as the dollar slipped to multi-year lows on bets that US interest rates would stay lower for longer under the Federal Reserve's new policy framework. Spot gold was up 0.8 per cent at $1,985.64 per ounce by 0644 GMT (12:14 pm in India), after hitting its highest since August 19 at $1,989.42 earlier in the session. US gold futures rose 0.8 per cent to $1,994.40.

"With the greenback expected to remain weak, we expect gold to grind higher and revisit the $2,000 an ounce level initially," said Jeffrey Halley, a senior market analyst at OANDA.

The dollar index dropped to a more than two-year low against its rivals, making gold cheaper for holders of other currencies.

The Fed's new monetary policy strategy, which could result in inflation moving slightly higher and interest rates staying lower for longer, has triggered a sell-off in the dollar, driving inflows into safe-haven bullion.

The US central bank's new approach to monetary policy means a low unemployment rate on its own doesn't warrant higher interest rates, Fed Vice Chair Richard Clarida said on Monday.

"Expectations of lower for longer when it comes to US interest rates and continued weakness in the USD index are setting a favourable environment for precious metals, especially gold," ING analyst Warren Patterson said in a note.

Low interest rates reduce the opportunity cost of holding non-yielding bullion, which is also used as a hedge against inflation and currency depreciation.

The US said on Monday it was establishing a new bilateral economic dialogue with Taiwan, a decision that could worsen relation between Washington and Beijing as China claims Taiwan as its own territory.

Elsewhere, silver was up 1.5 per cent at $28.64 per ounce, after hitting its highest since August 11.

Platinum rose 1.4 per cent to $942.69 and palladium climbed 1.7 per cent to $2,280.82.