Gold rebounds from two-week low as investors await central banks

[SINGAPORE] Gold gained from the lowest close in more than two weeks ahead of policy maker gatherings this week at the Federal Reserve and the Bank of Japan. Silver jumped.

Bullion for immediate delivery rose as much as 0.5 per cent to US$1,317.17 an ounce, before trading at US$1,315.19 at 11:24am in Singapore, according to Bloomberg generic pricing. The metal closed at US$1,310.35 on Friday, the lowest since Aug 31. Silver surged as much as 2.1 per cent, the most since Sept 6, to US$19.1777 an ounce.

Gold has given up some of the gains made in the first half as investors debate the likely outlook for policy from the world's central banks, with higher rates bad news for the metal. The odds of an US rate increase at the policy-setting Federal Open Market Committee meeting, which ends Sept 21 remain at just 20 per cent, with the chance of a move in December above 50 per cent.

"The market is just suggesting that a rate increase this week is not likely," David Lennox, resources analyst at Fat Prophets in Sydney, said by phone. "At this stage, the market is just focused on what's going to happen this week."

Still, hedge funds have cut their bets on a bullion rally by the most in more than three months, with speculation mounting that Fed officials, in the statement scheduled for release this week, will signal that higher US interest rates are on the way.

Silver's surge is following gold as prices are expected to be sustained at higher levels, if the rate increase is pushed to the end of the year, Mr Lennox said.

Holdings in exchange-traded funds backed by the metal added 9.8 metric tons to 2,024.4 tons on Friday, data compiled by Bloomberg show.

In China, bullion of 99.99 per cent purity declined 0.6 per cent to 283.25 yuan a gram on the Shanghai Gold Exchange. Markets were shut on Thursday and Friday.

On the Shanghai Futures Exchange, gold for December delivery dropped 0.6 per cent to 284.40 yuan a gram, while silver rose 0.7 per cent to 4,295 yuan a kilogram.

Platinum advanced 1.2 per cent and palladium climbed 1 per cent.

BLOOMBERG