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Gold firm on lower dollar, eyes on U.S. rate hike signals

August 15, 2016 by shekarm

Gold rose on Monday as the dollar edged lower after sluggish U.S. retail sales data lowered expectations of a U.S. interest rate increase this year.

Data on Friday showed U.S. retail sales were unexpectedly flat in July, signalling a moderation in consumer spending.

Spot gold was up 0.3 percent at $1,339.87 an ounce by 1138 GMT. The metal rose as much as 1.3 percent after the data on Friday, before giving up gains.

U.S. gold was up 0.1 percent at $1,345.10 an ounce.

Spot gold remained within reach of a more than two-year high of $1,374.91 hit last month as investors sought refuge from volatility across financial markets following Britain's vote to leave the European Union.

"We have Fed minutes coming out in the middle of the week, which is likely to tell us what the Fed's thinking is going into the second half of the year, when it probably going to come under pressure to raise rates," Mitsubishi Corp strategist Jonathan Butler said.

"In general the negative rate environment, particularly in the euro zone and Japan, is going to keep gold well bid and even though we may be seeing some tempering of gold's gains by the pretty strong equity market performance right now, that is going to come into question as the Fed looks to raise rates."

The dollar was down 0.1 percent against a basket of currencies, European equities rose and U.S. Treasury 10-year yields hovered around a two-week low hit on Friday.

A lower dollar makes gold cheaper for other currency holders, while the fall in returns from U.S. bonds is seen as positive for the metal, which pays no interest. Higher shares, however, signal increased investor risk appetite.

High on the U.S. calendar this week are inflation figures for July and minutes of the last Federal Reserve meeting which might offer more clues on the chance of an interest rate hike by year end.

 

Summer holidays in the Northern hemisphere are keeping gold in check, with trading thin and range-bound, MKS PAMP Group said in a note.

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