Gold firm on lower dollar, eyes on US rate hike signals

[LONDON] Gold rose on Monday as the dollar edged lower after sluggish US retail sales data lowered expectations of a US interest rate increase this year.

Data on Friday showed US retail sales were unexpectedly flat in July, signalling a moderation in consumer spending.

Spot gold was up 0.4 per cent at US$1,340.51 an ounce by 1031 GMT. The metal rose as much as 1.3 per cent after the data on Friday, before giving up gains.

US gold was up 0.2 per cent at US$1,345.60 an ounce.

Spot gold remained within reach of a more than two-year high of US$1,374.91 hit last month as investors sought refuge from volatility across financial markets following Britain's vote to leave the European Union.

"We have Fed minutes coming out in the middle of the week, which is likely to tell us what the Fed's thinking is going into the second half of the year, when it probably going to come under pressure to raise rates," Mitsubishi Corp strategist Jonathan Butler said.

"In general the negative rate environment, particularly in the euro zone and Japan, is going to keep gold well bid and even though we may be seeing some tempering of gold's gains by the pretty strong equity market performance right now, that is going to come into question as the Fed looks to raise rates."

The dollar was down 0.1 per cent against a basket of currencies, European equities rose and US Treasury 10-year yields hovered around a two-week low hit on Friday.

A lower dollar makes gold cheaper for other currency holders, while the fall in returns from US bonds is seen as positive for the metal, which pays no interest. Higher shares, however, signal increased investor risk appetite.

High on the US calendar this week are inflation figures for July and minutes of the last Federal Reserve meeting which might offer more clues on the chance of an interest rate hike by year end.

Summer holidays in the Northern hemisphere are keeping gold in check, with trading thin and range-bound, MKS PAMP Group said in a note.

"We don't expect to move too far outside of the US$1,330-US$1,360 range over the short term," it said.

Speculators cut their net long positions in COMEX gold and silver futures and options in the week to Aug 9, Commodity Futures Trading Commission (CFTC) data showed on Friday.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 1.22 per cent to 960.45 tonnes on Friday from Thursday.

Silver was up 0.8 per cent at US$19.87 an ounce.

Platinum and palladium were up 1 per cent at US$1,127.80 and US$690.4, respectively. Both hit their lowest in more than two weeks on Friday.

REUTERS