Gold hits 6-week high after U.S. data dampens rate hike expectations

Key Points
  • Gold up 1.2 percent for week so far.
  • U.S. economy accelerates, inflation weaker than expected.
  • Dollar nears 13-month lows.

Gold prices rose to a six-week high on Friday after weaker than expected U.S. inflation dampened expectations that the U.S. Federal Reserve will aggressively raise interest rates and North Korea fired a ballistic missile, triggering safe-haven buying.

Data on U.S. second quarter gross domestic product (GDP) and labor costs also pushed the dollar lower, making bullion cheaper for holders of other currencies.

"It showed a big fall in annual inflation rates across the board ... so there is no urgency for the Fed to raise interest rates," said Commerzbank analyst Carsten Fritsch.

Gold is sensitive to rising rates because they push up bond yields, making non-yielding gold less attractive, and tend to boost the dollar.

Spot gold was up 0.78 percent at $1,268.31 an ounce by 2:20 p.m. New York time after touching $1,270.38, the highest since June 14. It was on track to rise for a third week in a row.

U.S. gold futures for August delivery settled up 0.7 percent at $1,268.40.

Is it time to buy gold?
Is it time to buy gold?

North Korea fired a missile on Friday in an unusual late-night test launch, and details announced by Japanese officials and media suggested it could be an intercontinental ballistic missile (ICBM).

"There has to be at least a modest factor here that risk is rising in North Korea. We're not off to the races, we're not above $1,300 yet, but certainly there is room for speculators to increase their position," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.

"It doesn't hurt that you've got a weak U.S. dollar, and real rates have fallen off a little bit. Interest rates are under pressure, inflation's in question."

The U.S. dollar index fell on a combination of underwhelming U.S. economic data and political uncertainty, while global stock markets were also weak.

Julius Baer analyst Carsten Menke said the rally was fragile because it has been accompanied by physical market selling and he expected prices to fall to $1,200 an ounce.

Globally, the market had a surplus of 138 tonnes in the first half of 2017 as demand from physically-backed exchange traded funds tumbled, GFMS analysts at Thomson Reuters said this

In other precious metals, silver was up 1 percent at $16.69 an ounce, on track for a third weekly gain.

Platinum was 1.2 percent higher at $933.60 an ounce but set for its first weekly decline in three. Palladium was up 0.7 percent at $878.72, and was on track for its strongest weekly performance in seven weeks.