Gold holds advance even as Fed officials flag possible rate rise

[SINGAPORE] Gold held a two-day gain before the release of the Federal Reserve's minutes of its July meeting as investors weigh comments from central bank officials who signaled that interest rates could be increased at least once this year.

Bullion for immediate delivery traded at US$1,344.96 an ounce at 12:24 pm in Singapore from US$1,346.24 on Tuesday, according to Bloomberg generic pricing. The metal is 27 per cent higher this year.

Gold has advanced this year as the Fed has yet to add to last year's rise, which was the first in almost a decade. New York Fed President William Dudley warned investors they are underestimating the likelihood of increases, while Atlanta Fed chief Dennis Lockhart said he's confident growth is accelerating, setting the stage for one or two rises this year.

While the comments boosted the probability of a hike in December to 51 per cent, gold rose and the dollar fell on Tuesday.

"Gold has remained supported despite hawkish comments from Fed's Dudley," Bryan Lum, a Singapore-based strategist with Phillip Futures Pte Ltd, said in an e-mail.

"While he suggested that a September rate hike was possible, the disappointing economic data released over the past few days has the market unconvinced."

"With recent retail sales and CPI data falling below expectations, it appears that the economy may not be fully on track for recovery," Mr Lum said.

"Given a soft US dollar and wavering outlook, gold traders have enough reason to remain bullish and look upon dips as opportunities for bargains." The minutes of the Fed's policy meeting due are for release Wednesday at 2 pm in Washington. Stagnant retail-sales data on Aug 12 cast doubt about the strength of the US recovery.

The Fed's preferred measure of inflation, which has been below the central bank's 2 per cent target for four years, has been slow to pick up.

Holdings in bullion-backed ETPs added 5.25 metric tons to 2,032.9 tons on Tuesday, data compiled by Bloomberg show.

In China, bullion of 99.99 per cent purity fell 0.2 per cent to 287.50 yuan a gram on the Shanghai Gold Exchange.

On the Shanghai Futures Exchange, gold for December delivery lost 0.3 per cent to 288.05 yuan a gram, while silver dropped 0.6 per cent to 4,382 yuan a kilogram.

Silver rose 0.3 per cent, platinum climbed 0.1 per cent and palladium declined 0.5 per cent.

BLOOMBERG