The price of gold surged 2.1 per cent last week to its highest point since November 17, as the US dollar weakened and the Federal Reserve kept interest rates on hold.
The US central bank gave no clear indication on the likelihood of a March interest rate increase in its latest statement, prompting the US dollar to slide.
A weaker greenback makes dollar-dominated commodities such as gold more affordable for investors who hold other currencies.
Bullion was fetching $US1220 an ounce on Friday, US time. The rapid onslaught of US President Donald Trump's anti-immigration policies, brash comments about currency manipulation and a protectionist trade stance also boosted demand for gold, considered a safe-haven asset.
"Trump and his associates/cabinet continue to make noises that are rattling the markets and, again, this will continue to support gold," said David Govett, head of precious metals at Marex Spectron.
In a sign of just how emboldened gold bulls were, investors snapped up $US413 million of SPDR Gold Shares, the largest exchange-traded fund backed by the precious metal, and reversed almost half of the sell-off in December, according to Bloomberg data.
Australian gold producers also benefited from the recent upswing in the gold price. The S&P;/ASX All Ordinaries Gold Index leapt 35 per cent since mid-December, when the risk-on sentiment that dominated markets since the November election began to waver.
Good performance
As earnings season gathers steam, gold producers are coming in largely in line with analysts' forecasts, given the pricing of bullion is often relatively predictable, relative to benchmarks.
"Gold companies in the December quarter have suggested genuinely good performance, or appropriately managed expectations," writes Paul Hissey, an analyst at the Royal Bank of Canada in a note to clients.
Shares in Newcrest Mining, Australia's largest gold producer, have soared 34 per cent since mid-December.
But there are still some headwinds facing the precious metal as uncertainty roils financial markets.
According to an ING note, there is a large surplus of gold at the moment and ETFs have been moving away from precious metals. Holdings of precious metals by ETF investors are now at a seven-month low, the bank says.
"Expectations of further rate rises in the US, as well as stronger equity markets, has seen investors move away from precious metals," reads the ING note. "This is despite an increase in political uncertainty expected for 2017."
Also gold's role as a safe haven could diminish should strong economic data emerge from the United States, capping its recent price rally.
Traders will be looking to the US jobs report slated for release on Friday, which may ultimately influence future interest rate hikes and provide more information on the US economy.
