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Gold climbs on dollar; rate outlook caps gains.

Gold climbs on dollar; rate outlook caps gains

Fri, September 14, 2018 16:24

LONDON, Sept 14, 2018 (News Wires) - Gold edged higher on Friday, supported by a drop in the dollar, but gains were tempered by expectations of a US rate hike later this month.

The dollar index slipped to a 1-1/2 month low after weaker-than-expected US inflation data and a recovery in emerging markets, but had rebounded to trade slightly firmer in the European afternoon after US industrial output rose.

Spot gold was up 0.2 per cent at $1,202.61 an ounce by 13:50 GMT, having hit its highest since Aug. 28 at $1,212.65 on Thursday. It has risen 0.6 percent so far this week, on track for its first weekly gain in three.

US gold futures dipped 0.1 per cent to $1,207.60 an ounce.

"We've seen quite a bit of weakness in the dollar which has supported gold, but we're not out of the woods yet," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

"The fact that gains weren't stronger has still got to do with gold's focus on the Chinese renminbi, which remains a bit challenged, but also that the market is starting to look forward to the next US rate hike."

Gold has shown a close correlation to the currency of China, the biggest gold consuming nation, analysts say.

Investors widely expect another 0.25 percentage point interest rate hike when the US central bank meets on Sept. 25-26, and there is a strong chance of another increase in December.

Higher rates make gold less attractive since it does not pay interest but costs money to store and insure.

The months-long trade tension between Washington and Beijing has prompted investors to buy the US dollar in the belief that the United States has less to lose from the dispute.

However, the demand for the dollar eased this week on news that the White House had invited Chinese officials to restart trade talks.

Gold prices have declined about 12 per cent from a peak of $1,365.23 in April amid intensifying global trade tensions and under pressure from rising US interest rates. This has driven investors towards record short positions in Comex gold and heavy liquidations in gold exchange-traded funds (ETF).

Holdings of SPDR Gold, the largest gold ETF, were down 0.4 per cent on Thursday and 4.1 million ounces from a April peak.

Meanwhile, spot silver rose 0.1 per cent to $14.18 per ounce, palladium added 0.2 per cent to $984.40 per ounce and platinum gained 0.4 per cent to $803.40 an ounce after touching a one-month high at $812.30 on Thursday.

"We've seen some traders dipping their toes back in platinum, which is at a near record discount to gold," Hansen said.

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