Gold prices reached a three-week peak on Friday as a weaker U.S. dollar and safe-haven buying provided support for the precious metal. Spot gold hit $2,654.21 per ounce by mid-morning, marking its highest level since December 13, and was up approximately 1.3% for the week. U.S. gold futures were steady at $2,669.90.

The dollar index, which measures the greenback against a basket of major currencies, declined by 0.4% from a two-year high reached earlier this week. A softer dollar makes gold more affordable for holders of other currencies, fueling demand. "Gold bulls are setting the tone early doors this year, enjoying the lift from safe haven bids while riskier equities struggle to hold on to nascent gains," said Han Tan, Chief Market Analyst at Exinity Group.

Safe-haven demand for gold has been further amplified by geopolitical tensions. Israeli airstrikes in Gaza killed at least 68 Palestinians, and Russia launched a drone strike on Ukraine's capital Kyiv, adding to the global uncertainty.

The upcoming inauguration of U.S. President-elect Donald Trump has also injected unease into markets. Economists are anticipating potential inflationary pressures and trade disruptions stemming from Trump's proposed tariffs and protectionist policies. "Markets are aware that Trump's policies risk reawakening U.S. inflationary impulses, which should be a boon for gold so long as markets adhere to the precious metal's role as an inflation hedge," Tan added.

Gold thrives in environments of geopolitical and economic uncertainty, as well as during periods of low interest rates. Although the U.S. Federal Reserve delivered three interest rate cuts in 2024, it now projects only two reductions for 2025 due to persistently high inflation.

Silver also rose by 0.5% to $29.72 per ounce, with analysts projecting strong demand. "Lower real U.S. yields and stronger global industrial production should favor the metal in 2025," UBS noted, predicting silver to trade between $36-38 per ounce in the coming year.

Platinum gained 0.9% to $931.45, and palladium rose 1.4% to $924.06, with both metals on track for weekly gains. Broker SP Angel highlighted robust demand from Asia, which has helped offset headwinds from rising U.S. Treasury yields and a stronger dollar earlier in the week.

Meanwhile, the Chinese yuan weakened beyond 7.3 per U.S. dollar for the first time since late 2023. Analysts suggest that the People's Bank of China may be accommodating growth pressures through a weaker currency. "Risk sentiment is so poor that the benchmark stock index just closed at the weakest level since September," said Wee Khoon Chong, senior APAC market strategist at BNY. Sovereign yields in China also hit record lows.

In the U.S., Treasury yields continued to rise, with the benchmark 10-year yield reaching 4.55%. Elevated yields reflect expectations of stronger economic growth and the U.S.'s budget deficit challenges. "While elevated yields may indicate expectations of stronger U.S. economic growth, they're also a response to the huge Treasury issuance required to pay for it," said David Morrison of Trade Nation.

Gold has demonstrated resilience despite these rising yields, supported by strong Asian demand and technical factors. February gold futures have shown impressive strength, with bulls targeting a close above the $2,700 mark. First resistance is seen at $2,681, while support lies at $2,650.

Silver futures have also been buoyed, although March silver faces challenges from a nine-week-old downtrend. Analysts identified $31.00 as the next upside target for silver bulls, while bears aim to push prices below the August low of $27.39.