Gold firms above $1,700 per ounce as dollar, yields slide

Gold extended gains on Tuesday to firm above the key $1,700 per ounce level on a retreat in the dollar and US Treasury yields as investors expected the Federal Reserve to tone down its pace of monetary tightening.

Spot gold was up 0.4 per cent at $1,705.40 per ounce, as of 0918 GMT, having touched its highest since Sept. 13 at $1,710.49 earlier in the session.

US gold futures rose 0.8 per cent to $1,714.90.

"Bad news is good news for gold now. Basically, if we get worse economic data from the US, then the market will believe we're closer to a peak in rates," said Ole Hansen, head of commodity strategy at Saxo Bank.

"Gold is not out of the woods yet, but at least we've seen a very strong rebound. The first move has been driven by short covering."

Gold started the quarter on a solid note, registering on Monday its biggest daily percentage gain since March as a slowdown in US manufacturing activity raised hopes that the Fed might be less aggressive going forward.

US 10-year Treasury yields fell to a near two-week low, while the dollar index extended its decline, making gold cheaper for other currency holders.

"Investors have started to price in a less aggressive Fed, with the revised expectations reflected by greater demand for treasuries, lower yields, and the corresponding weakening of the greenback," Ricardo Evangelista, senior analyst at ActivTrades, said in a note.

The Fed has raised rates aggressively since March and Fed officials have noted more rate hikes are needed to tame inflation.

Focus now shifts to US non-farm payrolls data due on Friday that could offer more clarity on Fed policy tightening.

Spot silver rose 0.2 per cent to $20.79 per ounce, having earlier hit a peak since June 29.

Platinum was steady at $902.67 per ounce and palladium climbed 1.4 per cent to $2,251.35.