Gold prices surged to nearly three-week peak, fuelled by growing expectations of Federal Reserve interest rate cuts in early 2023. Spot gold rose by 0.2 per cent to $2,049.49 per ounce, marking its highest level since December 4. US gold futures also experienced a 0.5 per cent increase, reaching $2,060.80 per ounce.

The surge in gold prices is attributed to a decline in US real yields, driven by increasing anticipation of the first Fed rate cut in March. Kelvin Wong, a senior market analyst at OANDA, emphasized the positive impact of this trend on gold, highlighting the diminished opportunity cost of holding the precious metal in a lower interest rate environment.

Meanwhile, the US dollar index lingered near a five-month low, amplifying gold's attractiveness for holders of other currencies. Additionally, benchmark US 10-year bond yields remained close to their lowest levels since July, further supporting the appeal of gold.

Traders are currently assigning an 83 per cent probability of a Fed rate cut by March, according to the CME FedWatch tool. Despite Fed officials pushing back against the notion of swift rate cuts in the coming year, investor sentiment remains largely unchanged.

Market focus is now cantered on the release of the November core personal consumption expenditure (PCE) index report, the Fed's preferred gauge of underlying inflation. This data is expected to provide additional clarity on the US interest rate outlook. Analysts anticipate a 3.3 per cent year-on-year increase in the index, a slight decrease from October's 3.5 per cent.

Silver maintained its position at $24.41 per ounce, while platinum witnessed a marginal 0.1 per cent decline to $962.13, and palladium remained flat at $1,213.10. All three metals are on track for their second consecutive weekly gains.

The precious metals market continues to be influenced by both macroeconomic factors and geopolitical events, with safe-haven buying also noted due to concerns in the Red Sea. Gold Hits Three-Week High on Rate-Cut Speculations and Dollar Weakness Ahead of US Inflation Data

(With Reuters inputs)