Gold slips from seven-week high as investors look to Fed

[LONDON] Gold edged down from a seven-week high on Wednesday as investors took profits following a recent rally, with strong economic growth in Europe and rising US stock markets encouraging a shift to riskier assets.

But gold prices were supported by doubts US interest rates would rise quickly while the market awaited US payroll data on Friday for further clues.

Spot gold was down 0.1 per cent at US$1,267.10 an ounce at 1214 GMT. It touched US$1,273.97, the highest since June 14, on Tuesday, having risen nearly 6 per cent from a low in early July.

US gold futures were 0.5 per cent lower at US$1,272.70 an ounce.

"Good European data gives greater optimism for the outlook," said ETF Securities strategist Martin Arnold. "People aren't necessarily looking for that event risk hedge which gold provides." But he said prices were unlikely to move significantly before Friday's payroll data.

Political turmoil in Washington and a run of weak economic indicators have reduced expectations that the US Federal Reserve will raise rates rapidly.

"Investors are probably looking for some further evidence of stronger inflation numbers before they get a little bit more optimistic about a rate hike," said ANZ analyst Daniel Hynes.

Gold is highly sensitive to rising rates because they lift bond yields, raising the opportunity cost of holding non-yielding bullion, and tend to boost the US dollar, in which gold is priced.

The US dollar remained near 14-month lows on Wednesday while US bond yields rose slightly.

On the technical side, fibonacci resistance for gold was at US$1,274.70 with support at US$1,261.30, analysts at ScotiaMocatta said.

Demand for physical gold, however, has been weak, with holdings in the largest gold-backed exchange-traded-fund, the SPDR Gold Trust, falling more than 7 per cent in July, the biggest monthly outflow since April 2013.

In other precious metals, silver was down 0.2 per cent at US$16.66 an ounce after earlier touching its highest since June 29.

Platinum was flat at US$943.50 an ounce.

Palladium, used in the automotive industry for emission-controlling catalytic converters, was up 0.7 per cent at US$898.10 an ounce after rising to US$901.50, the highest since June 13.

But US car sales data had disappointed, analysts at Commerzbank said. Speculative investors were keeping the price elevated, they said in a note. "We no longer see any justification for the high palladium price."

REUTERS