August 31, 2017 / 11:09 AM / 4 months ago

PRECIOUS-Gold rises as dollar retreats, Korean tensions support

    * Gold market notes subdued U.S inflation
    * Spot gold set to close August up nearly 4 percent
    * ETF gold holdings below Monday's nearly 6-week high

 (Updates prices; adds comment, second byline, NEW YORK
dateline)
    By Marcy Nicholson and Pratima Desai
    NEW YORK/LONDON, Aug 31 (Reuters) - Gold prices rose on
Thursday, nearing Tuesday's 9-1/2-month high as the dollar
retreated after data showed the pace of U.S. annual inflation
slowed, while rising security concerns triggered by tensions on
the Korean peninsula provided safe-haven support.
    The dollar index        weakened after data showed U.S.
annual inflation rose at its slowest pace since late 2015, which
diminished expectations of an interest-rate increase by the
Federal Reserve in December. The greenback fell further after
U.S. Treasury Secretary Steven Mnuchin commented on tax reform.
                              
    A falling U.S. currency, already near its lowest since 2015,
makes dollar-denominated gold cheaper for holders of other
currencies, which could boost demand.       
    Spot gold        was up 0.8 percent at $1,319.31 an ounce by
2:05 p.m. EDT (1805 GMT), on track for a nearly 4 percent rise
for August, which would be its strongest monthly performance
since January. On Tuesday, it rose to a 9-1/2-month high at
$1,325.94.
    U.S. gold futures         settled up 0.6 percent at
$1,322.20. 
    "Gold bulls are energized after bullion defied an overnight
push under $1,300 to close at new highs for the move," said Tai
Wong, director of base and precious metals trading for BMO
Capital Markets in New York.
    "Secretary Mnuchin's comments suggesting that tax reform may
not be revenue-neutral hamstrung the dollar, which helped drive
the gold rally."
    Some of this month's gain came after North Korea fired a
missile over Japan. That was followed two days later by South
Korea's air force conducting an exercise with two U.S.
nuclear-capable bombers above the Korean peninsula on Thursday.
             
    "The situation in Korea encouraged interest in gold, and the
weaker dollar has lifted gold," Oxford Economics commodities
analyst Dan Smith said.
    "We don't know what's going to happen with geopolitics, but
we seem to be in a fairly stable environment in terms of the
macro picture, which should mean limited upside for gold."
    Oxford Economics expects the gold price to average $1,265 in
the fourth quarter and $1,270 next year.
    Holdings of gold in physically backed exchange traded funds
                have eased slightly from Monday's nearly
six-week high.          
    "The North Korean missile test ... helped gold burst
decisively through $1,300/ounce triple-top resistance," INTL
FCStone analyst Edward Meir said in a note. "It will be
interesting to see if further chart-based buying materializes
now that this triple-top has been breached, especially on any
dips."
 
    Elsewhere, silver        rose 0.9 percent to $17.53 an
ounce, platinum        gained 0.7 percent to $993.53, and
palladium        added 0.8 percent to $935. 

    
 (Additional reporting by Arpan Varghese in Bengaluru; Editing
by Susan Thomas and Lisa Von Ahn)
  

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