Gold rises towards 15-month high on dollar, US rates uncertainty

Gold rose to just shy of a 15-month high on Tuesday as the dollar and global shares fell on uncertainty around future U.S. interest rates increases, rekindling investor appetite for safer assets.

Reuters| Updated: May 04, 2016, 08:59 AM IST

London: Gold rose to just shy of a 15-month high on Tuesday as the dollar and global shares fell on uncertainty around future U.S. interest rates increases, rekindling investor appetite for safer assets.

The metal`s rally was triggered by the Federal Reserve`s cautious stance towards higher U.S. rates at its policy meeting last week.

Since its December rate rise, the Fed has slowed its expected pace of subsequent increases in response to risks a slowdown in the global economy could be more severe than anticipated.

As a result, gold has gained 22 percent since the start of the year.

"Many market players think that monetary policies of various central banks will remain loose for a prolonged period of time and U.S. rates will stay low for longer," said Commerzbank analyst Daniel Briesemann.

Spot gold advanced 0.2 percent to $1,293.81 an ounce by 1404 GMT, after earlier hitting a session high of $1,302.00. It reached its strongest level since January 2015 at $1,303.60 an ounce on Monday.

The dollar weakness and strength in the gold price have triggered a sharp increase in money flowing into the SPDR Gold Trust, the world`s top gold-backed exchange-traded fund (ETF).

Assets of the fund rose 20.8 tonnes to 824.94 tonnes on Monday in the biggest increase since Feb. 22. Holdings are at their highest since December 2013.

"The recent weakness in the dollar triggered a lot of bullishness in the gold futures market ... which can easily reverse if the Fed turns more hawkish about hiking interest rates," Julius Baer analyst Carsten Menke said.

"But as long as investors stay in the ETFs and we don`t see selling from that side, I wouldn`t expect prices to fall below $1,200."

Gold may consolidate in a range of $1,289-$1,304 for a day before rising again, Reuters technical analyst Wang Tao said.

Investors will be eyeing U.S. data this week to gauge the strength of the economy and its impact on the Fed`s monetary policy.

Bullion is sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar.

The key data will be U.S. nonfarm payrolls due on Friday. The U.S. economy is expected to have added 200,000 jobs in April, slightly lower than March.

"The non-farm payroll report this week may have a neutral effect on gold given that investors are confident that even if the figures are good, there would not be any move by the Fed (to hike rates) until the second half of this year," said Mark To of Wing Fung Financial Group.

Among other precious metals, silver was down 0.1 percent, after hitting a 15-month high of $18 on Monday.

Platinum climbed to a fresh 10-month high of $1,089.70 an ounce, while palladium fell 0.5 percent to $614.97.