Gold tests $1,300 again, sparking further inflows into gold-backed funds

London (May 3)  Gold rose close to $1,300 an ounce on Tuesday as the dollar and European shares fell, triggering further investment in physically backed gold funds.

The metal has rallied about 5% over the past few sessions to a 15-month high on Monday after the Federal Reserve’s cautious stance towards higher US rates, as well as a soaring yen, weighed on the dollar.

A weaker dollar makes gold cheaper for holders of foreign currencies.

Spot gold climbed 0.5% to $1,297.11/oz by 10.05am GMT, after earlier hitting a session high of $1,302.

It hit its strongest since January 2015 at $1,303.60 on Monday.

The dollar weakness and strength in the gold price rally 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 by 20.8 tonnes to 824.94 tonnes on Monday in the biggest increase since February 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 US 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 nonyielding bullion, while boosting the dollar.

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

Among other precious metals, silver was up 0.2%, after hitting a 15-month high of $18 on Monday.

Platinum climbed to a fresh 10-month high of $1,89.70/oz but palladium fell 0.4% to $615.72.

Source: bdLive