Gold holds gain after Fed raises growth outlook doubt

[MELBOURNE] Gold held an advance after a Federal Reserve official said a run of weak data cast doubt on the strength of the US economy, clouding the outlook for an interest rate increase. Investors cut holdings to the lowest since 2009.

Bullion for immediate delivery traded at US$1,192.17 an ounce at 11.40 am in Singapore from US$1,193.01 on Tuesday, when prices rose 0.3 per cent as the dollar fell, according to Bloomberg generic pricing. Prices in Shanghai rose for a second day in the first back-to-back gain since May 18.

Gold is little changed this year as investors digest US data and policy makers' remarks to gauge when the Fed will raise borrowing costs. There is value to "watchful waiting" while additional data clarify the economy's momentum, Fed Reserve Governor Lael Brainard said Tuesday, citing headwinds including a stronger dollar, weakness in Europe and China, and a drop in oil. Recent reports showed gross domestic product shrank in the first quarter, while consumer spending stalled in April.

"Prices are likely to remain sensitive to monetary policy expectations," James Steel, an analyst at HSBC Securities (USA) Inc., wrote in a note. "Expectations for a delay in liftoff of rates would be interpreted as positive for gold." Mr Brainard's comments contrast with a May 22 speech by Fed Chair Janet Yellen, who said she expected the economy to improve after first-quarter weakness, making a rate increase appropriate this year. Officials have said they need to see more improvement in the labor market, and to be reasonably certain inflation will move back toward the Fed's 2 percent goal.

Investors sold gold in exchange-traded products for a fifth day, cutting holdings to the lowest level since 2009. Assets shrank 0.3 per cent to 1,594.08 metric tons as of Tuesday, according to data compiled by Bloomberg.

Gold for August delivery fell 0.2 per cent to US$1,192.40 an ounce on the Comex. Bullion of 99.99 per cent purity climbed 0.2 per cent to 237.75 yuan a gram (US$1,193.33 an ounce) on the Shanghai Gold Exchange.

Silver for immediate delivery slid 0.2 per cent to US$16.764 an ounce from US$16.7995 on Tuesday, when prices capped three days of gains. Platinum increased 0.1 per cent to US$1,114.79 an ounce, while palladium was little changed at US$768.22 an ounce.

BLOOMBERG