Gold heads for weekly gain as weaker dollar cools US rate hike expectations

Gold prices advanced on Friday (August 14) and were heading for a weekly gain, supported by a weaker US dollar after inflation readings reinforced expectations that the Federal Reserve would leave interest rates unchanged in September, Reuters reported.

Spot gold rose 0.7% to US$4,379.95 an ounce by 1.40pm EDT (5.40pm GMT). It had fallen 1.3% in the previous session as investors took profits after prices reached their highest level since June 5. Bullion was about 0.9% higher for the week.

US gold futures settled 0.4% higher at US$4,437.30.

Jim Wyckoff, a market analyst at American Gold Exchange, attributed part of the increase to movements in the currency market.

“The lower US dollar index is an external factor supporting gold today,” he explained.

The dollar index slipped 0.3%, making dollar-denominated gold less expensive and more attractive to buyers using other currencies.

Gold also drew support from an unexpected decline in US non-farm payrolls in July and inflation readings released this week that were broadly in line with forecasts.

Together, the figures sharply reduced expectations of an interest-rate increase in September, with most analysts anticipating that the Fed would maintain its current rate range of 3.50% to 3.75%.

CME’s FedWatch Tool showed that markets were assigning a 33% probability to a September rate increase, down from 55% a week earlier.

Commerzbank wrote in a research note: “Because we do not expect the Fed to raise rates, gold still has scope for further gains.”

Gold, which does not provide interest income, generally benefits from lower interest rates.

Shipping through Strait of Hormuz remains near standstill

Meanwhile, maritime traffic through the Strait of Hormuz appeared to have nearly ground to a halt after two more vessels were attacked.

The United States indicated that it could maintain its naval blockade of Iran indefinitely, putting oil prices on course to end the week higher.

Wyckoff warned that sustained increases in oil prices could ultimately weigh on precious metals.

“Continued rises in oil prices would hurt precious metals by fuelling inflation and pressuring central banks to raise interest rates,” he explained.

Elsewhere, domestic gold discounts in India widened to their highest level in more than two months.

Among other precious metals, spot silver gained 0.7% to US$64.88 an ounce, platinum climbed 1.8% to US$1,746.97 and palladium advanced 1.1% to US$1,320.93.

Silver and platinum were heading for weekly gains, while palladium remained on course to end the week lower.

Source: Reuters