Gold inches up from 8-week low as US dollar weakens

[BENGALURU] Gold edged up on Thursday to hold just above an eight-week low hit earlier this week, with the US dollar declining against the yen.

Spot gold was up 0.2 per cent at US$1,220.56 per ounce by 0316 GMT. It hit an eight-week low of US$1,213.81 on Tuesday.

US gold futures also gained 0.2 per cent, to US$1,220.70 an ounce.

"Combined with a moderation in confrontational foreign policy rhetoric from the Trump administration in May, a 'market friendly' election result in France is helping to unwind demand for gold to hedge against political risk," BMI Research said in a note.

"Receding risk aversion in Europe and hawkish language from the US Federal Reserve will cap gold demand in the near term," BMI added, cutting its 2017 average gold price forecast to US$1,250 per ounce from US$1,300.

The Fed should hike interest rates three more times this year, Boston Fed President Eric Rosengren said on Wednesday.

Markets are pricing in around a 90 per cent chance that the economy is strong enough for the Federal Reserve to raise interest rates at its meeting next month.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the US dollar, in which it is priced.

The US dollar edged lower after notching an eight week high against the yen in Asian trade.

Spot gold is expected to test support at US$1,209 per ounce, a break below which could cause a further loss to the next support at US$1,188, according to Reuters technical analyst Wang Tao.

"From a pure technical-fundamental aspect, everybody would be eying US$1,200 as the next level of support, but I think US$1,215 support here is not out of the question," said Spencer Campbell, general manager with Kaloti Precious Metals in Singapore.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, have fallen over eight tonnes in the past two weeks.

"We have seen some ETF liquidation as people are feeling a little bit comfortable politically," Mr Campbell said.

"Military exercises are being expanded across Asia, in particular the Korean Peninsula. The lack of news in that particular area has taken the edge off the prices of gold, so the pull back has been inevitable." Spot silver gained 0.6 per cent to US$16.23 an ounce.

Platinum was up 0.2 per cent at US$910.24, while palladium fell 0.3 per cent to US$796 an ounce.

REUTERS