Gold defies strength in dollar, yields as global rates peak

Gold firmed on Friday despite pressure from a stronger U.S. dollar and bond yields, as investors assessed major central banks' decisions to stand pat on interest rates as a signal of imminent global economic pain.

Spot gold GOLD was up 0.3% at $1,925.40 per ounce, as of 0811 GMT, having posted its biggest daily drop since Sept. 5 on Thursday. U.S. gold futures GOLD rose 0.4% to $1,946.90.

Central banks for the world's biggest economies have signalled they would keep rates as high as needed to tame inflation, even as two years of global policy tightening reach a peak.

"The markets looked at central banks and said you're not stopping hikes because inflation is beaten, you're stopping because you're worried that global growth is about to stop," said Ilya Spivak, head of global macro at Tastylive.

"There is a very strong sense that global growth is running out of legs to stand on."

The dollar stood near a six-month peak on prospects of higher-for-longer U.S. rates, while benchmark 10-year Treasury yields climbed a 16-year high and global equities eyed their worst week in a month.

Investors traditionally buy gold as a hedge against economic uncertainty, but higher rates tend to weigh on non-interest-paying bullion.

Markets priced in a 45% chance of another rate hike by the U.S. Federal Reserve before next year, while also seeing roughly a 42% chance of some easing in the first half of 2024, according to the CME FedWatch tool.

Traders also digested the Bank of Japan's decision to maintain ultra-low rates, while awaiting key purchasing managers' index (PMI) data from the UK, the U.S., and the euro zone later in the day.

Silver XAGUSD1! gained 1.4% to $23.70 per ounce and was set for its best week in four.

Platinum PL1! added 1.1% to $929.07 and palladium XPDUSD1! rose 1.1% to $1,277.03.