Gold rises as US rate outlook assessed against investor demand

[SINGAPORE] Gold rose after posting a three-week decline, the longest stretch in more than four months, as investors weigh the outlook for US interest rates against signs of robust demand.

Bullion for immediate delivery climbed 0.4 per cent to US$1,256.07 an ounce by 2:19pm in Singapore, according to Bloomberg generic pricing. The metal is down 4.5 per cent this month, paring the year's advance to 18 per cent on prospects for higher US borrowing costs.

Gold's gains in 2016 have been eroded as investors seek to determine whether the Federal Reserve will add to last December's rise, and if so, when tightening may occur. Fed Chair Janet Yellen said on Friday there are ways that running the economy hot could fix damage caused by the Great Recession, laying out the argument for keeping policy easy without taking a hike off the table this year. While expectations of a rate increase have risen in recent weeks, so too have holdings in gold-backed exchange-traded funds.

"A hike is being considered - that is clear - but the Fed is certainly not about to remove stimulus aggressively anytime soon," Australia & New Zealand Banking Group Ltd said in a note on Monday.

"Investor appetite remains strong" in gold, it said.

Even as the Fed is considering higher rates, investors in ETFs backed by gold have yet to flinch by selling down their holdings. Assets increased to 2,051.3 metric tons, the highest since June 2013, according to data compiled by Bloomberg as of Friday.

Traders will be scouring US data including industrial output and inflation this week for signs the world's biggest economy is strong enough to warrant a hike. Fed fund futures indicate the probability of an increase in December is about 66 per cent, up from 52 per cent a month ago, according to data compiled by Bloomberg.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, traded near a seven-month high.

Bullion of 99.99 per cent purity was little changed at 272.89 yuan a gram (US$1,260.61 an ounce) on the Shanghai Gold Exchange.

On global markets, spot platinum climbed 0.7 per cent, rising for the first day in six. Palladium advanced 0.9 per cent, while silver added 0.2 per cent.

BLOOMBERG