Commodity hits 2-wk high on hopes Fed will not raise rates soon

June 8, 2016 6:57 AM

Spot gold was up 0.6 percent at $1,250.80 an ounce by 0649 GMT. It hit a high of $1,251.00 earlier in the session, its strongest since May 23.

Gold bars are seen at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna, Austria, March 18, 2016.

Gold touched a fresh two-week high on Wednesday as the possibility of an early U.S. interest rate hike appeared to dim following dovish comments by Federal Reserve Chair Janet Yellen earlier this week.

Yellen gave a largely upbeat assessment for the U.S. economy on Monday and said interest rate increases were coming, but investors focused on her lack of guidance about when.

U.S. gold climbed 0.5 percent to $1,253.20.

"The direction for this week will be a little quiet (for gold), waiting for the FOMC meeting next week. But I think nothing is going to change due to disappointing non-farm payroll data," said William Wong, assistant head of dealing at Wing Fung Precious Metals in Hong Kong.

Weak U.S. payrolls data, released last week, has boosted expectations that the Fed will stand pat on interest rates for the time being. Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding bullion.

Gold, which slid more than 6 percent in May, has risen about 2.7 percent so far this month on dampened expectations of an early rate hike.

The World Bank slashed its 2016 global growth forecast on Wednesday, which could also throw cold water on a possible Fed move.

"It boils down to how the Fed will take into consideration this global slowdown. If they take this very seriously and show no urgency in a rate hike then it will be a boon for gold," said Helen Lau, an analyst at Argonaut Securities in Hong Kong.

The world's biggest consumer of the yellow metal, China, kept its gold reserves unchanged, at 58.14 million fine troy ounces at the end of May, from the end of April, the central bank said on Tuesday.

Analysts, however, said China still has enormous U.S. dollar holdings and is likely to keep purchasing gold in order to diversify its forex reserves, which should serve as a supportive factor for the metal.

Asian shares edged up on Wednesday, while the dollar languished near four-week lows.

Among other precious metals, silver and palladium touched near three-week highs, while platinum marked its highest in two weeks.

Silver was up 1.2 percent at $16.57 an ounce, platinum rose 0.6 percent to $1,004 and palladium was 1 percent higher at $559.87.