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Gold at highest in a year as rate hike expectations recede

Reuters logo Reuters 2017-09-08 By Peter Hobson

A employee works on 1 kg. gold bars in Ahlatci Metal Refinery in the central Anatolian city of Corum © REUTERS/Umit Bektas A employee works on 1 kg. gold bars in Ahlatci Metal Refinery in the central Anatolian city of Corum Gold prices rose to their highest in more than a year on Friday as weak economic data reduced expectations of another interest rate increase in the United States this year, U.S. bond yields fell and the dollar plunged to its weakest since early 2015.

Demand for U.S. government debt and other safe-haven assets rose after an increase in U.S. jobless claims and worries about the impact of hurricanes Irma and Harvey on economic growth.

A weaker dollar fuels demand for gold by making it cheaper for holders of other currencies, while lower bond yields reduce the opportunity cost of owning non-yielding bullion.

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Spot gold was up 0.3 percent at $1,352.71 by 1026 GMT after hitting $1,357.54, its highest since August 2016.

It was up 2.2 percent this week, on course for a third consecutive weekly gain.

U.S. gold futures for December delivery were up 0.6 percent at $1,359 an ounce.

"The dollar has been weakening for some time and that is the main reason gold is going up," said Julius Baer analyst Carsten Menke.

He said that receding expectations of a U.S. interest rate increase in December were also pushing investors to gold. Money managers' bets on higher prices increased sharply over July and August.

Gold is highly sensitive to rising interest rates because they push up bond yields and tend to boost the dollar.

New York Federal Reserve President William Dudley said on Thursday that U.S. interest rates should rise only gradually given low inflation but did not repeat an assertion three weeks ago that he expects to raise rates once more this year.

Simmering tensions over North Korea also maintained demand for gold as a safe haven, with U.S. President Donald Trump saying he would prefer not to use military action but that if he did it would be a "very sad day" for the Pyongyang leadership.

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Technical resistance was at $1,353, gold's peak in September last year, but upward momentum could lift it to the 2016 high of $1,375, ScotiaMocatta analysts said.

In other precious metals, silver was up 0.6 percent at $18.18 an ounce after touching $18.21, its best since April. It was on course for a 2.8 percent weekly gain.

Platinum was up 0.3 percent at $1,018.50, having touched $1,022.70, its highest since March.

Palladium gained 0.3 percent to $952.25 but was heading for a first weekly decline in seven weeks.

(Additional reporting by Apeksha Nair in Bengaluru; Editing by David Goodman)

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