Gold sprints to over 5-year peak after Fed hints at rate cuts

Gold prices surged as much as 1.8 percent to their highest in more than five years on Thursday after the US Federal Reserve signaled possible interest rate cuts later this year, sending the dollar and U.S. Treasury yields lower.

Spot gold jumped 1.4 percent to $1,378.70 per ounce as of 0252 GMT, after hitting its highest since March 17, 2014 at $1,383.81.

US gold futures surged 2.5 percent to $1,382.70 an ounce.

The Federal Reserve on Wednesday said it was ready to battle growing global and domestic economic risks with interest rate cuts beginning as early as next month, as it took stock of rising trade tensions and growing concerns about weak inflation.

Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies.

"The weakness in the dollar seen due to the rate cut expectations and a lot of short covering due to the sudden jump in prices are behind the sharp move," said Benjamin Lu, analyst, Phillip Futures, adding that some of the weaker stop losses were taken out.

"With this move, the target for gold investors has moved to $1,400 and the key is to sustain this momentum for this week. On the longer term, it is going to be difficult to stay above $1,400 as with better conditions for riskier assets due to rate cuts, investors might move to equities."

Even as the US central bank left its benchmark interest rate unchanged for now, the shift in sentiment since its last policy meeting weighed on the dollar and US Treasury yields.

"Gold has taken a nice leg up" on the back of falling yields and dollar, said Chris Weston, head of research at Melbourne-based foreign exchange brokerage Pepperstone.

"The question now is if there is going to be a 50 basis points cut in July, which could take gold into $1,400."