Gold rallied to 3-1/2 month highs on Wednesday, as soft U.S. data and concerns over deflationary pressures in China fueled expectations the U.S. Federal Reserve will hold off raising interest rates, pressuring stocks and the dollar.
peaked at $1,188.20 an ounce, its highest since June 23, and was up 1.6 percent at $1,187.56 an ounce. It extended gains, leading up to and after release of the Fed Beige Book report, which showed U.S. labor markets continued to tighten and U.S. manufacturing hurt by recent dollar strength.
U.S. gold futures for December delivery settled up 1.2 percent at $1,179.80 an ounce, settling above their 200-day moving average for the first time in five months, marking a bullish technical close.
"This close breaks us out of the downtrend we had seen for most of the year," said Dan Izzo, vice-president, Global Marketing Strategy Group for brokerage RJO'Brien in New York.
The dollar fell to a 3-1/2 week low versus a currency basket after weaker-than-expected readings of domestic retail sales and producer prices further cut expectations the Fed would raise rates later this year.
"The U.S. retail data have taken all the singing and dancing away from the U.S. dollar, which is under heavy selling pressure and hence we are experiencing another massive upward move for the precious metal," Naeem Aslam, chief market analyst at Ava Trade, said.
"The data represents the most naked form of consumer confidence and it showed that the U.S. consumers are holding back... This has pushed out the rate hike expectations which was the biggest curse for the yellow metal."
Gold is a non-yielding asset and tends to benefit from ultra-low rates.
"A good portion of today's strength really is wrapped around the idea that most feel, given today's (lower-than-expected) data, is showing continued signs that the Fed is likely to remain on hold for the first interest rate hike," said David Meger, director of metals trading for High Ridge Futures in Chicago.
The Fed cited concerns about the global economy when refraining from hiking rates at its September meeting.
In Asia, home of the main physical gold markets, there was some decent interest in gold overnight, MKS said in a note.