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Gold price rises back towards $1,360 as talk of US rate hikes fades

August 2, 2016

London (Aug 2)  Gold rose on Tuesday as European shares fell 1 percent and the dollar hit its lowest in over a month versus the euro, after last week's soft U.S. growth data dented expectations for a near-term interest rate hike.

Platinum group metals continued to shine, with platinum reaching its highest since May 2015 and palladium holding near the previous session's 14-month peak.

Spot gold was up 0.30 percent at $1,357.10 an ounce, while U.S. gold futures for December delivery were up $4.30 an ounce at $1,363.90.

"We had that poor U.S. second-quarter GDP number which came out on Friday, and that seems to have given gold a bit of a leg-up," Societe Generale analyst Robin Bhar.

"That basically pushes back the likelihood of the next Fed rate increase, possibly now into 2017."

Gold is highly sensitive to U.S. interest rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

European stocks fell to two-week lows on Tuesday, dragged down by banks, while the euro rose above $1.12 for the first time in more than a month. The dollar has been sold steadily since surprisingly weak U.S. second-quarter growth numbers last week.

The Federal Reserve should be cautious on interest rate increases due to lingering risks to the U.S. economy, New York Fed President William Dudley said on Monday, appearing to signal the chance of a hike by the end of the year was fading.

A 28 percent rise in gold prices this year has largely been driven by a retreat in expectations that the Fed will soon hike U.S. rates again, after lifting them for the first time in nearly a decade in December.

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, rose 5.9 tonnes on Monday, its biggest one-day inflow since late June.

"While speculative financial investors are clearly withdrawing from gold, ETF investors are remaining loyal," Commerzbank said in a note. "They bought 8.4 tons of gold yesterday, which was the highest daily inflow in three weeks and the fourth consecutive daily inflow."

Among other precious metals, platinum rose 0.6 percent at $1,164.49 an ounce on Tuesday, after touching a more than 14-month high of $1,168 earlier in the day.

Palladium was 0.2 percent higher at $714.78, after hitting a 13-month high of $722.70 an ounce in the previous session. Silver was up 1.3 percent at $20.66.

Source: CNBC

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