Gold rebounds after U.S. durable goods data hits dollar

finance.yahoo.com

By Jan Harvey

LONDON (Reuters) - Gold rebounded on Tuesday as weaker-than-expected U.S. durable goods data knocked the dollar to a session low against the euro, but prices remained hemmed into a narrow range ahead of a Federal Reserve policy meeting.

Spot gold was up 0.4 percent at $1,242.16 an ounce at 1340 GMT, off an earlier low of $1,231.10, while U.S. gold futures for June delivery were up $3.90 at $1,244.10.

The Fed is expected to hold interest rates steady at the meeting starting on Tuesday, but traders will be watching for changes to its assessment of the U.S. economy, which could point to more rate increases later in the year.

Economists expect a Fed increase in June, with another by year-end. But interest rate futures show less conviction, underscoring the gap between markets and policymakers on the trajectory of rates.

"Our economists are looking for rates to remain unchanged (this week)," Standard Chartered analyst Suki Cooper said. "They're looking for anything to signal a June hike, though that's not their base case scenario."

"We think risks are rising for the Fed to maintain a dovish view, and that's going to set quite a positive background for gold prices," she said. "If we get a hawkish tint in the statement, and the physical market remains weak, I can see prices falling towards $1,200 before they start to pick up."

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

The metal has risen 16 percent this year, chiefly on expectations that the Fed would hold off raising rates further after its first increase for nearly a decade in December.

Supporting gold, the dollar fell 0.6 percent against a currency basket after orders for long-lasting U.S. manufactured goods rebounded less than expected in March, suggesting the downturn in the factory sector was far from over.

"The metal continues to be influenced to a large extent by U.S. dollar movements," HSBC said in a note. "Gold has a long-run inverse relationship with the dollar."

Holdings of the world's largest gold-backed exchange-traded fund -- New York-listed SPDR Gold Shares -- fell 0.3 percent to 802.65 tonnes on Monday. 

They reached a two-year high earlier this year but have since stabilised.

Among other precious metals, silver was up 0.3 percent at $17.04 an ounce, platinum was up 0.2 percent at $1,013, and palladium was down 0.2 percent at $599.70.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by David Evans and Louise Heavens)