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Gold up 2% near $1,400 on poor US home sales

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Gold rose 1.9 percent on Friday, hitting its highest price in more than two months near $1,400 an ounce, as a big drop in U.S. new home sales renewed hopes that the Federal Reserve will maintain its bond-buying economic stimulus.

For the week, gold gained 1.6 percent for its third consecutive weekly rise. It has climbed in six out of the past seven weeks since gold fell to a three-year low at $1,180 an ounce on June 28.

Silver outperformed gold to rally nearly 4 percent to a 3 1/2-month high as the dollar fell and U.S. Treasury bond yields dropped. It also rose above the $24 mark for the first time since May 9.

Sales of new single-family homes in the United States fell more than 13 percent in July to their lowest level in nine months. The Commerce Department data was much weaker than expected, even during a month when Fed stimulus remained in place.

"The new home sales number is terrible, so the fear is clearly that higher interest rate is going to topple this housing recovery, which means the Fed has to ease and not tighten," said Axel Merk, portfolio manager of Merk Funds which has around $500 million in currency mutual-fund assets.

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Bullion also drew support when three Fed officials expressed divergent views on when to reduce the central bank's $85 billion monthly bond buying. Investors have been trying to predict what will happen at a Fed policy meeting next month.

Spot gold was up 1.7 percent to $1,398 an ounce, having hit $1,397.30, the highest price since June 7. U.S. gold futures for December delivery settled $25.00 higher at $1,395.80 an ounce, up 1.8 percent on the day.

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