PRECIOUS-Gold surges over 2% on waning dollar, Fed policy shift

* Dollar heads for worst week in a month

* Silver on track for 2nd straight weekly gain

* Interactive graphic tracking global spread of coronavirus: open in an external browser (Updates prices)

By K. Sathya Narayanan

Aug 28 (Reuters) – Gold rebounded over 2% on Friday, a day after a steep sell-off, as the U.S. dollar weakened and the U.S. Federal Reserve signaled a prolonged low interest rate strategy.

Spot gold rose 2.1% to $1,968.59 per ounce by 12:41 pm EDT (1641 GMT), taking gains this week to about 1.5%. Prices fell as much as 2.2% on Thursday after U.S. Treasury yields gained following Fed Chair Jerome Powell’s speech.

U.S. gold futures rose 2.5% to $1,980.90.

“The sizeable sell-off in the greenback has propped up gold,” said David Madden, market analyst at CMC Markets UK.

“The Fed said it can allow inflation to run above its 2% target for some time seems like they are going to keep their monetary policy extremely loose, which should help gold.”

The dollar fell to an more than one-week low, making gold cheaper for holders of other currencies, and was on track to post its biggest weekly percentage fall since end-July.

Powell said on Thursday the central bank would adopt an average inflation target, meaning rates are likely to stay low even if inflation rises a bit in future.

On the other hand, global central banks and governments have pumped massive stimulus into the market to prop up their coronavirus damaged economies, helping gold gain over 28% this year.

“The shift in Fed policy will mostly likely reignite ‘the inflation trade,’ which has historically been bullish for hard assets (like gold),” Kitco Metals senior analyst Jim Wyckoff said in a note.

Low interest rates tend to support gold, which is also a hedge against inflation and currency depreciation.

Silver rose 1.8% to $27.53 per ounce, on track for a second consecutive weekly rise.

Platinum gained 0.1% to $929.49, while palladium rose 2.1% to $2,206.54.

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