Gold holds gains as expanding ETF holdings counter rate outlook

[SINGAPORE] Gold held a two-day rise at the end of a week that's demonstrated the metal's resilience, with holdings in exchange-traded funds extending a run of gains to the highest since 2013 even as investors see increased prospects for higher US interest rates.

Bullion for immediate delivery was at US$1,257.55 an ounce at 10:05am in Singapore, after climbing 0.4 per cent in the last two days, according to Bloomberg generic pricing. Following a two-week drop, the price has steadied, with ETF holdings rising for the sixth week in a row.

Gold has avoided a further selldown against the backdrop of a firmer US dollar and drumbeat of commentary from Federal Reserve officials that higher US borrowing costs are due soon. Fed Bank of Philadelphia President Patrick Harker said on Thursday that he supported an increase in September, and would like to see the central bank gradually raise rates going forward. Bullion prices rose Thursday as global stocks dropped for a third day.

Upcoming data will give investors more indications about the potential rate path, including figures on retail sales, consumer sentiment and producer prices due on Friday. Traders currently assign about a two-thirds chance of a December rate increase, based on prices in federal funds futures contracts, and a less than 20 per cent chance of a move next month.

The assets in gold-backed ETFs rose to 2,050.3 metric tons as of Thursday. This year, the holdings have surged 40 per cent, with most of the increase coming in the first half.

BLOOMBERG