Soft US inflation pushes gold prices higher for the first time in four weeks

London (May 11)  Gold was set for its first weekly gain in four weeks on Friday after soft US inflation data suggested that the US Federal Reserve could show caution on the pace of interest rate rises.

The weaker-than-expected April consumer price data on Thursday helped knock the dollar from 2018 highs and push down US bond yields. Both fell further on Friday. That benefits gold because a weaker dollar makes bullion cheaper for users of other currencies, while lower bond yields make non-yielding gold more attractive to investors.

"[Gold’s rise] was mostly a response to the consumer price data out of the US yesterday," said Capital Economics analyst Simona Gambarini.

Spot gold was up 0.3% at $1,324.69 an ounce by 10.28am GMT, having touched a two-week high of $1,325.06. It was up 0.7% for the week. US gold futures for June delivery gained 0.2% to $1,324.70. Gold has traded in a range of about $1,310 to $1,355 since hitting a one-and-a-half-year high in January.

Prices appeared to be building positive momentum, said technical analysts at ScotiaMocatta. Consolidation above resistance at the 100-day moving average of $1,326 could be a catalyst for a move higher, said MKS PAMP trader Tim Brown.

But with the Fed likely to raise interest rates three more times this year, gold was likely to end 2018 at $1,300, said Capital Economics’ Gambarini. Higher interest rates hurt gold because they push up bond yields and tend to boost the dollar.

James Bullard, head of the Federal Reserve Bank of St Louis, will make a speech on Friday, as will European Central Bank (ECB) president Mario Draghi.

Investors largely brushed off tensions in the Middle East after the US ditched an accord designed to stop Iran from developing nuclear weapons. Two days after the announcement, Israel attacked Iranian military infrastructure in Syria.

"Geopolitical concerns [remain] but investors aren’t paying significant attention," said Naeem Aslam, chief markets analyst at Think Markets. "The dollar story is more prominent."

A summit between the leaders of the US and North Korea to be held in Singapore on June 12 also eased fears of conflict. Gold is traditionally seen as a safe place to park assets in times of uncertainty.

In other precious metals, silver was up 0.5% at $16.75 an ounce, near two-and-a-half-week highs and set for a 1.6% weekly gain.

Platinum was 0.1% down at $923.24, having hit its highest since April 25 at $927.40. Palladium advanced by 0.5% to $1,003.72, holding above its technically important 200-day moving average after reaching its highest since April 23.

Reuters

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