Picture: REUTERS
Picture: REUTERS

Bengaluru — Gold prices rose to a week high on Thursday, supported by expectations of an interest rate cut by the US Federal Reserve following soft inflation data, which also weighed on the dollar.

Spot gold was up 0.3% at $1,336.56 an ounce at 11.46am GMT, having touched its highest since June 7 at $1,338.87 earlier in the session. US gold futures were also 0.3% higher at $1,340.3 an ounce.

“We had disappointing US inflation data which reinforced market expectations that the Fed would cut interest rates, which itself is a positive for gold and related to that we see some weakness on the dollar today,” Julius Bär analyst Carsten Menke said.

Data from the US labour department showed on Wednesday that US consumer prices barely rose in May, pointing to moderate inflation that, together with a slowing economy, increased pressure on the US central bank to cut interest rates this year.

Fed policy makers are scheduled to meet on June 18 and 19 against the backdrop of rising trade tensions, slowing growth and a sharp step-down in hiring in May which have led financial markets to price in at least two rate cuts by the end of 2019.

Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies.

The dollar index versus a basket of six major currencies was down 0.1% on Thursday.

On the trade front, US President Donald Trump declined to set a deadline on Wednesday for levying tariffs on another $325bn of Chinese goods and called the relationship with Beijing good but “testy” after China walked back commitments for a trade deal.

“Since the beginning of June we’ve had quite constant inflows into physically backed gold products as investors are weighing risks related to the trade tensions between the US and China and also between US and Mexico,” Menke added.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund (ETF), rose 0.5% to 759.70 tonnes on Wednesday from 756.18 tonnes on Tuesday.

On the technical side, the next topside resistance for gold sits between $1,346 and $1,349 and if this breaks, a quick rise to $1,360 to $1,366 would be on the cards, MKS PAMP Group said in a note. “On the downside, we believe there will be physical and macro-support between $1,305 and $1,320, which we view as a good buying opportunity.” 

In other metals, silver climbed 0.5% to $14.81 an ounce and platinum was up 0.4% at $811.81. Palladium gained 1.7% to $1,429.75 an ounce after hitting a more than six-week high of $1,433.41 earlier in the session.