Gold price hurt by dollar, US data, but still set for weekly gain

London (Jun 12)  Gold edged lower on Friday as the dollar strengthened after signs of increased momentum in the US economy bolstered prospects of higher interest rates.

Bullion was however heading for its first weekly rise in four, capitalising on gains made earlier in the week, when the dollar was weaker and worries increased over the Greek crisis.

Spot gold was down 0.2% at $1,179.60 an ounce by 9.54am GMT, while US gold futures for August delivery were down $1.10/oz at $1,179.30.

A stronger dollar, up 0.7% against a basket of leading currencies, weighed on gold, making it more expensive for holders of other currencies.

Data on Thursday showed US retail sales surged in May, adding to recent upbeat employment data that suggested the economy was gathering pace after a slow start to the year.

A firming economy could likely prompt the US Federal Reserve to raise interest rates in September, which would boost the dollar further, in turn denting demand for non-interest-paying bullion.

"The closer we get to this expected US interest rate hike, the lower the price of gold will get ... we still have space for more losses until September, when the first rate hike should happen," Natixis analyst Bernard Dahdah said.

Weak physical demand and outflows from exchange-traded funds continue to undermine gold prices, traders said.

Gold failed to gain support from lower European equities and deteriorating Greek debt talks. The International Monetary Fund (IMF) said on Thursday its delegation had left negotiations and flown home due to major differences with Athens.

"The perception is that Europe can handle a Greek default better than it would have in 2010, when gold fell on the back of the unfolding of the Greek crisis and the fear of contagion to other periphery countries," Mr Dahdah said.

Greece needs a deal to unlock aid before the end of the month when it is otherwise set to default on a €1.6bn repayment to the IMF. That could trigger capital controls and possibly push Greece out of the eurozone, with unpredictable consequences for financial markets and the European economy.

Gold is usually seen as a hedge against political and financial risk, although the impact on demand from wider political concerns is usually short lived.

Earlier this week, assets of the world’s top exchange-traded gold fund hit their lowest since September 2008, the month Lehman Brothers filed for bankruptcy.

Silver was down 0.6% at $15.90/oz, while platinum fell 0.9% to $1,096/oz and palladium lost 0.6% to $739.25/oz.

Source: BDlive