Gold heads for longest rally since 2012 on interest rate outlook

[NEW YORK] Gold headed for its longest rally since August 2012 as signs of sputtering US economic expansion fueled bets that interest rates will stay low for longer.

Spot prices climbed for a sixth straight session, rising every day since Federal Reserve policy makers cut their projections for growth and suggested they aren't in a hurry to raise borrowing costs. Higher rates usually send investors to assets with better yield prospects such as equities and bonds.

The dollar fell against 10 major partners as investors continued to adjust their outlook for the currency in the wake of last week's Fed meeting. US orders for durable goods unexpectedly dropped in February, government data showed Wednesday. Gold slumped 29 per cent in the previous two years as the dollar and equities surged, while inflation remained low.

"It's too early to say if gold prices will start a new rally, but for now prices will remain supported because of the dollar drop," Charlie Bilello, the director of research who helps oversee about US$220 million of assets at New York-based Pension Partners, said in a telephone interview. "The market expects no rate hike until September or October. The gold market will remain very US data dependent."

Bullion for immediate delivery rose 0.3 per cent to US$1,197.14 an ounce at 12:11 pm in New York, according to Bloomberg generic pricing. The metal touched US$1,199.81, the highest since March 6, and is up 4.1 per cent in six sessions.

Bookings for US goods meant to last at least three years declined 1.4 per cent last month, the Commerce Department said. Economists surveyed by Bloomberg forecast orders would rise 0.2 per cent.

"The disappointing durable goods data pushed the dollar lower and helped gold move higher," Frank McGhee, the head dealer at Alliance Financial in Chicago, said in a telephone interview. "The market is getting more and more convinced that the rate hike is not coming anytime soon."

Fed officials on March 18 lowered their estimates for where borrowing costs will be at the end of 2015 to 0.625 per cent, from December's estimate of 1.125 percent. Gold prices this week erased their 2015 losses.

Traders had been exiting precious metals in anticipation of steeper rate gains. Higher rates cut gold's allure because the metal generally offers returns only through price increases. Fed Bank of Chicago President Charles Evans, who votes on policy this year, said Wednesday that inflation remains too low to justify an interest-rate increase in 2015.

Gold futures for April delivery gained 0.4 per cent to US$1,196.70 on the Comex. Trading was almost 60 per cent higher than the 100-day average for this time, according to data compiled by Bloomberg. Prices are heading for the first quarterly gain since June.

Open interest in New York futures and options rose for three straight weeks as of March 17, US government data show. Holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, gained 5 per cent this quarter. The assets rose by 35 metric tons, the most since 2012.

Silver futures for May delivery climbed 0.1 per cent to US$17 an ounce on the Comex, heading for a fifth straight advance.

BLOOMBERG