Gold rally continues on lower dollar and US rate speculation

[LONDON] Gold rose to a 2-1/2 week high on Tuesday, heading for its fifth session of gains on a weaker dollar and growing expectations that a US interest rate increase could be pushed to September.

Spot gold climbed to its highest since March 6 at US$1,194.80 an ounce before easing slightly to trade up 0.4 per cent at US$1,193.90 by 1058 GMT.

Prices were on course to post their longest winning streak since January last year, with investors favouring bullion over the past few days because of a slump in the dollar after the Federal Reserve's cautious stance on the US economy and diminishing likelihood of an early rate increase.

The metal, which does not pay any interest, had suffered from earlier speculation of higher US rates as early as June.

The dollar fell 0.2 per cent against a basket of currencies, mostly because of euro strength after enouraging purchasing manager surveys in Europe.

"In the short term the dollar's drawback is favourable for a rally in gold; we seem to target US$1,200 on the upside, which is a strong resistance level," Mitsubishi Corp strategist Jonathan Butler said. "But investors could still apply the strategy of selling the rally."

More Federal Reserve officials cast doubt on the dollar's appreciation going forward and raised speculation that any tightening of monetary policy could be pushed back.

The Fed is widely expected to begin raising interest rates this year, though the policy path remains uncertain, the central bank's second-in-command said on Monday.

San Francisco Fed chief John Williams, however, said on Tuesday that the US economy could handle a stronger currency and pointed to the chance of a June rate rise.

Some analysts warned that gold prices could face resistance on the way up.

"The gold rally looks intact and we believe the market is firm, but it is close to running into upside resistance at US$1,200, a clear psychological level," HSBC said in a note.

Platinum was down 0.1 per cent at US$1,146.95 an ounce, while silver rose 0.4 per cent to US$16.98 an ounce and palladium lost 0.1 per cent to US$775.50 an ounce.

REUTERS