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Gold prices surged to a more than five-year peak on Thursday after the U.S. central bank signalled it was ready to cut interest rates as early as next month to boost growth, triggering a sharp fall in the American dollar.

Spot gold was touched US$1,386.42 Thursday morning, its highest since March, 2014, while gold futures rose nearly 3 per cent to US$1,386.90 per ounce.

“More than the actual impact itself, was the shift in expectations,” said Ryan Giannotto, director of research at GraniteShares with reference to the Fed’s statement.

“Expectations were very high for the Fed and the market was forecasting this. But the real risk was that it would not satiate investors’ demand for dovishness.”

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

The U.S. Federal Reserve on Wednesday signalled interest rate cuts could begin as early as July, saying it is ready to battle growing global and domestic economic risks as it takes stock of rising trade tensions and growing concerns about weak inflation.

Top Chinese and U.S. officials will resume trade talks in accordance with the wishes of their leaders, after negotiations to reach a broad trade deal broke down last month.

“Gold has been supported of late by trade and growth uncertainties, which weakened the U.S. dollar, caused bonds to rally and spurred equity market volatility,” UBS analysts said in a note. “The Fed’s dovish pivot on interest rates has pushed the gold price to a 5-year high and toward the $1,400/oz. mark.”

The U.S. dollar fell 0.5 per cent against a basket of its rivals to 96.64, putting it on course for its biggest two-day drop since February, 2018.

Gold in Australian dollars was at a record high.

Silver rose 1.4 per cent at US$15.36 an ounce, its highest in 12 weeks. Platinum was little changed at US$810.51 and palladium dipped 1 per cent to US$1,485.66 an ounce.

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