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Gold inches up above 1,225 as Fed rate hike, Iraq remain in focus

Published 05/18/2015, 01:22 PM
Updated 05/18/2015, 01:27 PM
Gold closed higher for the fifth time in six sessions on Monday

Gold closed higher for the fifth time in six sessions on Monday

Investing.com -- Gold futures rose modestly on Monday rebounding from a slight sell-off at the end of trading last week, amid escalated conflict in Iraq and a growing possibility for a delayed interest rate hike by the Federal Reserve.

On the Comex division of the New York Mercantile Exchange, gold futures for June delivery rose 2.20 or 0.20% to 1,227.50 a troy ounce. Gold has rallied from a minor slump when it fell on three consecutive sessions heading into May, plunging to a six-week low at 1,168.40. Gold has now closed in the green in five of the last six sessions and seven of the last nine.

Gold traded in a tight range of 1,221.30 at the low end and a peak of 1,231.90 on the first day of trading this week. Gold moved to its highest level since February 13 when it reached a session-high at 1,234.90.

In Iraq, approximately 3,000 Shi'iite milita fighters mobilized at a site near Ramadi, after the Western Iraqi city was taken over by the Islamic State over the weekend. Meanwhile, U.S.-led warplanes conducted more than 15 airstrikes near the capital of the Anbar Province at the request of Iraqi Security Forces, a coalition spokesman told Reuters. Islamic militants reportedly killed up to 500 people and forced 8,000 others to flee from the city in their biggest victory in more than a year, the Associated Press reported.

Gold is viewed as a safe-haven for investors in periods rife with high geopolitical risk.

In the U.S., the National Association of Home Builders' (NAHB) confidence index dropped two points to 54 in May – marking the fourth monthly decline in the last five months. Analysts expected the index to tick up by a point to 57, as builders emerge from a rough quarter in the winter when harsh weather tamped down on sales. The index is still up nine points on a year-over-year basis from a 45 reading last May. Any reading over 50, however, is viewed as a signal that builders are highly confident in the current condition of the housing market. The NAHB index has remained over 50 since last July.

Elsewhere, Federal Reserve Bank of Chicago president Charles Evans reiterated that while the Fed could still consider an interest rate hike in June if the economy is trending upward he doesn't recommend raising rates until the start of 2016. Speaking at the Swedbank Conference in Stockholm, Evans argued that the Fed should aim to "overshoot" its targeted goal of 2% inflation on an annual basis. For years, Evans has been regarded as one of the most dovish members of the Federal Open Market Committee.

"To establish adequate upward momentum in inflation, I think it likely would be appropriate to increase the fed funds rate target only gradually for a while after the first rate hike," Evans said in prepared remarks.

Gold, which is not attached to interest rates or dividends, struggles to compete with high yield bearing assets.

The U.S. Dollar Index, which measures the strength of the greenbacks, versus a basket of six other major currencies, gained 0.73 or 0.78% to 94.02.

Silver for July delivery rose 0.16 or 0.91% to 17.718 a troy ounce.

Copper for July delivery fell 0.020 or 0.67% to 2.905 a pound.

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