Gold hits 1-year low as dollar firms up

Gold hits one-year low on talk of more US rate rises

Wall Street pushed higher on Tuesday (Jul 17) as investors looked to Federal Reserve Chairman Jerome Powell's optimistic view of the United States economy and as solid earnings supported expectations of a strong second-quarter reporting season. "Overall, we see the risk of the economy unexpectedly weakening as roughly balanced with the possibility of the economy growing faster than we now anticipate", Powell said.

The Fed chief also described recent inflation data as "encouraging", with consumer price inflation a little above the central bank's 2 percent target.

The Fed raised rates in June and policymakers have indicated they expect two more increases this year.

Trade policy "has significant effects on the economy", Powell said, and "there is no precedent for this kind of broad trade discussion".

Powell tells lawmakers, "We have this precious grant on independence".

Lower tariffs would be a good thing for the U.S. economy, he said. The precious metal, that is considered as a safe haven at times of uncertainties, however, did not surprisingly gain from the trade war between the U.S. and its allies when most global financial markets tumbled.

"This may indeed provide the opportunity we have been looking for since Monday", Standard Bank trader Warrick Butler said in a note.

"We've heard a rising chorus of concern which now begins to speak of actual capex plans being put on ice for the time being", he said.

Meanwhile, oil prices were slightly softer after US crude inventories grew last week, rather than declined as expected, according to the American Petroleum Institute.

NZ Stats reported that the 1.5% rise in inflation was mainly attributable to higher prices for housing and household utilities, with gains of 0.9% and 3.1% in the quarter and in the year, respectively.

The economic recovery has supported strong job gains, averaging 215,000 a month in the first half of 2018, "a good deal higher than the average number of people who enter the work force each month", he said.

Still, wage growth has been sluggish and has not yet recovered to pre-crisis levels, he said.

Bullion is highly exposed to USA interest rates, as higher rates raise the opportunity cost of holding non-yielding assets and boost the dollar.

After the 2008 financial crisis, the Fed kept its key policy rate at a record low near zero for seven years before starting a slow process of boosting rates in December 2015.

"Currency weaknesses are resulting in outperformance for European indices against their USA counterparts", Joshua Mahony, market analyst at IG, said.

Higher interest rates make gold more expensive to own since bullion does not earn any interest or dividends, and costs money to store and insure.

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