Gold holds near 4-month low as US rate hike looms

[MANILA] Gold hovered near its lowest level since March on Thursday after Federal Reserve Chair Janet Yellen reiterated that a US interest rate increase is likely this year, buoying the dollar at bullion's expense.

Ms Yellen said the US central bank remains on course to raise interest rates this year, with labour markets expected to steadily improve and turmoil abroad unlikely to throw the US economy off track.

Ms Yellen's comments were in line with her recent remarks along with the most recent policy statement by the Federal Open Market Committee, which will meet next on July 28-29. Ms Yellen is expected to repeat those comments when she testifies before the Senate Banking Committee on Thursday.

Spot gold was off 0.3 per cent at US$1,145.85 an ounce by 0241 GMT, close to Wednesday's trough of US$1,143.43, its weakest since March 17.

A potential US rate hike has been discussed in financial markets as early as 2013, and gold has already fallen as a consequence, said HSBC analyst James Steel. "This leads us to conclude that most of gold's declines based on a rate rise have already occurred, and that gold's reaction to the rate hike - whenever it comes - and subsequent hikes, may be muted or short-lived," Mr Steel said in a note. "This reinforces our view that gold prices are likely to stay above US$1,100/oz although they may remain weak due to momentum selling near term." A looming US rate hike boosts the dollar, putting dollar-priced assets such as gold out of favour as they become more expensive for buyers holding other currencies.

US gold for August delivery eased 0.2 per cent to US$1,145.20 an ounce. Spot silver dropped 0.5 per cent, platinum eased 0.9 per cent and palladium dipped 0.6 per cent.

There was more evidence of US economic growth improving, with industrial production rebounding last month and factory activity in New York state picking up in July.

Premiums for physical gold on the Shanghai Gold Exchange picked up slightly to US$2-$4 an ounce over spot, although analysts say a slowing economy could cap demand from China, the world's top gold consumer.

Gold imports by No. 2 consumer India dropped 37 per cent in June from a year earlier to US$1.96 billion, the country's trade ministry said on Wednesday.

REUTERS