Gold extends advance as data signal Fed may delay rate increase

[MELBOURNE] Gold extended a rebound from a two-week low after reports showed signs of uneven US expansion, boosting speculation the Federal Reserve may push back the timing of raising interest rates for the first time since 2006.

Bullion for immediate delivery rose as much as 0.4 per cent to US$1,207.70 an ounce and was at US$1,206.98 by 9:16 a.m. in Singapore, according to Bloomberg generic pricing. The metal dropped to US$1,184.10 on Tuesday, the lowest level since April 1. Gold in Shanghai climbed after two days of losses.

The dollar weakened on Wednesday after reports showed that industrial output slipped more than projected in March and factories in New York struggled. The Fed is examining data to determine the best time to raise benchmark borrowing costs. Gold fell 2.4 per cent last month on speculation that rates would climb, damping the metal's appeal because it generally only offers returns through price gains.

"The US dollar remained on the back foot as the first of the second-quarter data disappointed," Australia & New Zealand Banking Group wrote in a note. Combined with retail sales figures that missed estimates, "these data suggest that the probability of the Fed commencing its tightening cycle in June continues to diminish," it said.

The Fed's report on factory output showed total industrial production declined 0.6 per cent in March, compared with a fall of 0.3 per cent projected in a Bloomberg survey of economists. Utility output posted the biggest decrease since January 2006 and mining production also fell.

The New York Fed's Empire State Index showed manufacturing in the state unexpectedly shrank this month. A separate report showed homebuilders confidence rose in April for the first time in five months. The Bloomberg Dollar Spot Index was 0.3 per cent lower on Thursday, dropping for a third day.

Gold for June delivery rose 0.4 per cent to US$1,206.50 on the Comex. Bullion of 99.99 per cent purity climbed 0.9 per cent to 240.50 yuan a gram (US$1,206.05 an ounce) on the Shanghai Gold Exchange.

Silver for immediate delivery increased 0.8 per cent to US$16.4717 an ounce. Platinum advanced 0.5 per cent to US$1,168.75 an ounce, while palladium added 0.1 per cent to US$771.70 an ounce.

BLOOMBERG