Gold Rises as Investors Watch Fed

By Dow Jones Business News, 
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By Ira Iosebashvili

Gold prices are rising as investors bet that the U.S. Federal Reserve will keep rates at rock-bottom levels, even as the U.S. economy shows signs of improvement.

Gold for July delivery rose 1.3% last week to $1,337 a troy ounce on the Comex division of the New York Mercantile Exchange. It was the sixth weekly gain, the longest such streak since August 2011, when prices were pushing toward $ 1,900 an ounce.

The rally has been spurred by the Federal Reserve's commitment to keep interest rates near zero for as long as possible, as it tries to fuel a recovery that appears to have gained traction only recently. Higher interest rates tend to hurt prices for gold, which yields nothing and can cost money to hold.

Conflicts in Ukraine and the Middle East have added to gold's attraction, as some investors use the metal as a hedge in times of political or economic uncertainty, believing gold will hold its value better than other assets.

"The market for gold feels stronger these days," said Frank Lesh, a broker at Future Path Trading. "People are more optimistic, funds are participating. There's a sense we've seen the lows."

Minutes from the Federal Reserve's last meeting, released Wednesday, showed the central bank will finish unwinding its economic stimulus by October, as expected.

The minutes failed to give any indication, however, that the central bank was considering raising interest rates soon, despite recent gains in the job market and stronger manufacturing numbers.

Gold prices are up 8% from June lows, gains that Mr. Lesh said have been driven by money coming off the sidelines into the market.

Hedge funds and other investors have increased net bets on gold for the five weeks through July 8, according to data from the Commodity Futures Trading Commission. Holdings at SPDR Gold Shares, the biggest exchange-traded fund that buys gold, have crept higher in recent weeks, after hitting five-year lows in May.

Some market watchers said they don't believe gold's rally will last. The U.S. economy generated far more jobs than expected last month, a sign that overall economic conditions are improving.

"Another strong employment number could lead the Fed to signal that rates may rise sooner, and send gold prices down," said Bart Melek, head of commodity strategy at TD Securities.

Mr. Melek said he thinks gold prices will drift down to $1,235 an ounce before the end of the year.

Still, the violence in Ukraine and the Middle East shows little sign of abating, while the next U.S. employment report is weeks away.

Meanwhile, gold is getting a boost from falling Treasury yields, and a wobble in global stock markets has made the precious metal seem like an attractive alternative, said Jim Steel, an analyst at HSBC Holdings PLC.

"We see no immediate reason for these trends to halt and expect gold to remain well bid," Mr. Steel said in a note to clients.


  (END) Dow Jones Newswires
  07-13-141451ET
  Copyright (c) 2014 Dow Jones & Company, Inc.


This article appears in: International , Commodities

Referenced Stocks: HSBC

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