August 2, 2018 / 3:45 AM / 3 months ago

Gold grinds lower as the dollar strengthens

LONDON (Reuters) - Gold prices edged lower on Thursday after an upbeat assessment of the U.S. economy by the Federal Reserve and new trade tensions between Washington and Beijing boosted the dollar and U.S. bond yields.

Gold bars are seen in the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna, Austria, December 15, 2017. REUTERS/Leonhard Foeger

Gold has slumped 11 percent since April to its lowest in a year as rising U.S. interest rates and the perception that trade wars will damage the United States less than other nations pushed the dollar higher.

The stronger dollar hurts gold because it makes bullion more expensive for buyers with other currencies. Higher bond yields meanwhile make non-yielding gold less attractive to investors.

But with the dollar up 0.4 percent against a basket of currencies at 1224 GMT, spot gold was holding fairly steady, down 0.1 percent at $1,214.51 an ounce.

“It looks like gold doesn’t want to go lower at the moment,” said ABN AMRO analyst Georgette Boele.

“We are in territory - $1,200-$1,220 an ounce - where we should start to bottom out.”

U.S. gold futures were down 0.4 percent at $1,223.3 an ounce.

Gold was helped by strong technical support including its low point of $1,211.08 last month, the 50 percent retracement of its rally in the first half of 2016 and the psychologically key level of $1,200 an ounce.

But momentum indicators suggest prices will continue to fall, according to analysts at ScotiaMocatta, and gold has not yet snapped a steep downtrend line from mid-June.

Adding to the pressure on bullion are expectations that the Federal Reserve will raise interest rates again in September.

Those expectations were bolstered on Wednesday by the Fed, which praised the strength of the U.S. economy, and a jobs survey which suggested that non-farm payroll data due on Friday could beat forecasts.

Higher interest rates are bad for gold because they push up bond yields and tend to boost the dollar.

Gold could fall to $1,200 ahead of a September rate announcement, Natixis analyst Bernard Dahdah said.

But after that, tightening monetary policy elsewhere could begin to push the dollar lower and help gold recover to above $1,300 next year, he said.

The Bank of England raised interest rates on Thursday, while the European Central Bank also intends to wind down its stimulus measures.

In other precious metals, silver was up 0.4 percent at $15.40 an ounce.

Platinum rose 0.8 percent to $818.20 an ounce and palladium was 0.1 percent lower at $913.25 an ounce.

Additional reporting by Apeksha Nair in Bengaluru; Editing by Alexander Smith and Jon Boyle

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