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Fundamentals and News
Gold Hits Two-Week High as Dollar Weakens on Rate Speculation
Gold advanced to the highest in two weeks as a weakening dollar attracted buyers in exchange-traded funds backed by the metal amid mounting speculation that U.S. interest-rate increases will be gradual.
The Bloomberg Dollar Spot Index fell for a third day, the longest losing streak in three weeks, a day after a report showed a core U.S. inflation gauge rose less than estimated in September.
That bolstered speculation the Federal Reserve won’t move aggressively in raising borrowing costs.
“We’ve seen a little reprieve from concerns about higher interest rates,” David Meger, the director of metals trading at High Ridge Futures in Chicago, said in a telephone interview.
“We’re seeing a little bit of a rebound as the dollar now sells off.”
Gold futures for December delivery rose 0.6 percent to settle at $1,269.90 an ounce at 1:39 p.m. on the Comex in New York, the highest since Oct. 3. That was a third straight gain, the longest winning streak since Sept. 22.
Investors boosted their holdings in ETFs backed by gold for a fifth straight session, extending gains to the highest in more than three years.
A Labor Department report on Tuesday showed that while the cost of living in the U.S. rose at the fastest pace in five months in September, the increase in prices excluding volatile food and fuel costs trailed estimates. The odds that interest rates will rise by December fell to 63 percent after the data Tuesday, down from 68 percent a week earlier. Lower rates boost the competitiveness of bullion against interest-bearing assets such as bonds.
The precious metal is set to rise to $1,347.40 an ounce by the time of the next London Bullion Market Association conference in October 2017, according to a survey of people attending this year’s gathering in Singapore, which ended on Tuesday.
Gold ETFs lost a combined $10 billion in cash the last two times yields rose for any significant amount of time. A net total of about $8 billion exited during the 160-bp increase in rates in late 2012, followed by another $2 billion in early 2015. Climbing rates signal a healthier economy and less inflation. Since gold is used as a crisis and inflation hedge, a rising rate environment doesn't bode well for ETFs that track the price of the metal. The SPDR Gold Shares (GLD) dominated the outflows with $16.7 billion. GLD's biggest inflows have come when rates were descending. Inflows in 2016 have leveled off as rates begin to creep up.
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