May 30, 2018 / 10:16 AM / 6 months ago

PRECIOUS-Gold gains ground on U.S. growth data but uncertainty over Italy lingers

    * Dollar falls from 6-1/2 month peak
    * Italy crisis sparks stock sell-off
    * GRAPHIC-2018 asset returns: tmsnrt.rs/2jvdmXl

 (Updates throughout to show gold rising, adds quote)
    By Zandi Shabalala
    LONDON, May 30 (Reuters) - Gold prices edged higher as data
on Wednesday showed the U.S. economy slowed slightly more than
initially expected in its first quarter while political
uncertainty lingered in Italy.
    U.S. gross domestic product increased at a 2.2 percent
annual rate, the Commerce Department said in its second estimate
of first-quarter GDP, instead of the previously reported 2.3
percent pace.             
    A slowing in economic growth in the world's largest economy
benefits gold as it usually signals higher interest rates by the
U.S. Federal Reserve.
    The news knocked the dollar        lower against a basket of
leading currencies, away from a near 6-1/2 month highs. A weaker
dollar makes assets such as gold cheaper for holders of other
currencies.
    "The risk (of interest rate increases) are still on the
horizon but the data is giving a bit of relief on the inflation
front and interest rates hike and that is a reason to take gold
for short term trade," said Quantitative Commodity Research
consultant Peter Fertig.
     U.S. benchmark 10-year Treasury yields       on Tuesday
registered their largest one-day drop since Brexit nearly two
years ago. Higher rates generally dent demand for
non-interest-paying gold.
    Spot gold        was up 0.3 percent at $1,301.18 per ounce
by 1503 GMT, while U.S. gold futures         for June delivery
rose 0.1 percent to $1,300 per ounce.    
    Meanwhile, Italy searched for a last-minute exit from almost
three months of political turmoil, with its biggest party
looking to make a renewed attempt to form a coalition government
with the right-wing League.             
    Analysts said uncertainty remained over Italy even as a
resolution was being sought, underpinning gold due to its appeal
as a store of value during political and financial turbulence.
    "I don’t see any market-pleasing resolution to be honest,
because a new caretaker government will not last long because it
doesn’t not have any majority in parliament," said Commerzbank
commodity analyst Carsten Fritsch. 
    China on Wednesday lashed out at Washington's unexpected
statement that it is sticking to the threat of imposing tariffs
on $50 billion of Chinese goods, saying Beijing was ready to
fight back in any trade war.             
    But Capital Economics' Simona Gambarini said the potential
trade war between China and the United States was mostly priced
into gold, which would need an escalation or resolution to
become a catalyst to prices again.
    Holdings of SPDR Gold Trust      , the world's largest
gold-backed exchange-traded fund, rose 0.35 percent to 851.45
tonnes on Tuesday.          
    In other precious metals, spot silver        was up 0.4
percent at $16.45 an ounce.
    Platinum        rose 0.2 percent to $905.90 an ounce, while
palladium        was 0.2-percent higher at $977.80.

 (Additional reporting by Karen Rodrigues in Bengaluru
Editing by Mark Heinrich)
  
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