Gold rallies to 11-week high

Gold rose almost 2 per cent on Friday, hitting its highest price in more than two months near $US1400 an ounce, as a big drop in US new home sales renewed hopes that the Federal Reserve will maintain its bond-buying economic stimulus.

Spot gold rose 1.6 per cent to $1,396.56 an ounce in New York on Friday, having hit $US1398.20, the highest price since June 7.

US Comex gold futures for December delivery settled up $US25 at $US1395.80 an ounce, with Comex trading volume about 20 per cent below its 30-day average, preliminary Reuters data showed.

For the week, gold gained 1.6 per cent for its third consecutive weekly rise. It has climbed in six out of the past seven weeks since gold fell to a three-year low at $US1180 an ounce on June 28.

Silver outperformed gold to rally nearly 4 per cent to a 3-1/2-month high as the US dollar fell and US Treasury bond yields dropped. It also rose above the $US24 mark for the first time since May 9.

Sales of new single-family homes in the United States fell more than 13 per cent in July to their lowest level in nine months. The Commerce Department data was much weaker than expected, even during a month when Fed stimulus remained in place.

“The new home sales number is terrible, so the fear is clearly that higher interest rate (are) going to topple this housing recovery, which means the Fed has to ease and not tighten,” said Axel Merk, portfolio manager of Merk Funds.

Bullion also drew support when three Fed officials expressed divergent views on when to reduce the central bank’s $US85 billion monthly bond buying. Investors have been trying to predict what will happen at a Fed policy meeting next month.

Some analysts said that gold’s recent rallies in thin trading suggest gains could fizzle easily, especially with the Fed’s planned stimulus cut and overall improvement in global economic conditions.


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