Gold Surges on Easing Oil Prices, Unwinding of Short Positions

Gold prices rose to a one-week high on Friday, driven by lower oil prices that eased concerns about prolonged inflationary pressures. Spot gold reached $4,352.39 per ounce, its highest level since September 11.

The decline in oil prices, which have extended losses for three straight sessions, reduced the main driver of overall inflation. Precious metal investors had expected a US rate hike and taken short positions, but these have been rapidly unwound, said Chris Gaffney, president of world markets at EverBank.

The Federal Reserve raised interest rates by a quarter of a percentage point to 3.75-4% on Wednesday, flagging more hikes in the coming months. Despite gold's traditional role as an inflation hedge, higher interest rates can diminish its appeal. The dollar rose to a seven-week high, making greenback-priced bullion expensive for holders of other currencies.