Gold price gains on dollar weakness

London (Jun 2)  Gold inched up on Thursday as the dollar touched a two-week low against the yen and investors await US labour data to assess whether this will boost the prospect of an early interest rate rise by the US Federal Reserve.

Investors were awaiting the US May ADP private sector employment report due later in the day and, most importantly, non-farm payrolls on Friday. Solid readings could heighten expectations for a move as early as the Fed’s June 14–15 policy meeting.

"People are looking for confirmation whether the likelihood of a summer rate hike is going to increase even further," Julius Baer commodity analyst Carsten Menke said. "As long as fears of a summer rate hike are kept alive by the incoming macro data, the odds are much higher that speculators move away from the long side in the gold market."

Spot gold was up 0.3% at $1,215.41 an ounce by 9.34am. US gold also gained 0.3% to $1,218.

Bullion had turned negative on Wednesday after data showed US manufacturing activity expanded for a third straight month in May. The dollar fell 0.3% against a basket of six major currencies, making gold cheaper for foreign currency holders. Bullion has taken a beating after the latest Fed meeting minutes released in May, and comments from key central bank officials, including Chair Janet Yellen, boosted expectations of an imminent US rate rise. Higher interest rates increase the opportunity cost of holding non-interest-yielding gold, while bolstering the dollar.

The market was also focused on the European Central Bank (ECB) meeting, due later on Thursday, to see whether this will raise growth and inflation forecasts. Spot gold is biased to revisit its May 30 low of $1,199.60 per ounce, as it has failed to break a resistance at $1,219, Reuters technical analyst Wang Tao said.

"Before Fed’s July conference, gold will touch a new bottom of perhaps $1,130–$1,140 in the following one and a half months," said Shandong Gold Group chief analyst Jiang Shu. "Overall though, because prices have been higher in the first half of the year, the second half may not be as good for gold long investors."

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.24% to 870.74 tonnes on Wednesday, the highest since November 2013. Among other precious metals, spot silver rose 0.3% to $15.99 per ounce, after slipping to $15.77 on Wednesday, its lowest since April 12. Spot platinum was up 0.8% at $974, while palladium was unchanged at $542.72.