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1st LD Writethru: Gold up on weaker U.S. dollar

Xinhua, December 12, 2015 Adjust font size:

Gold futures on the COMEX division of the New York Mercantile Exchange rose on Friday as the U.S. dollar showed weakness, despite a looming Fed rate hike.

The most active gold contract for February delivery rose 3.7 U.S. dollars, or 0.35 percent, to settle at 1,075.70 dollars per ounce.

Gold was given support as the U.S. Dollar Index, a measure of the greenback against a basket of major currencies, fell by 0.37 to 97.57 as of 1815 GMT. Gold and the dollar typically move in opposite directions.

Gold's rise was capped as a report released by the U.S. Department of Labor showed the Producer Price Index rebounding by a larger-than-expected 0.3 percent in November, showing inflation in the service industry.

Analysts believe that this confirms strength in the service industry, a positive sign for the U.S. economy, which will likely increase the chances of the U.S. Federal Reserve increasing interest rates at the December policy meeting.

Analysts believe that the long-term trend for gold remains strongly bearish as investors are waiting for the expected Fed rate hike, likely beginning at the December Federal Open Market Committee (FOMC) meeting.

Expectations were originally for a delay in the rate hike until 2016 but the FOMC meeting in late October left the door open for the Fed to raise rates before the end of 2015.

An increase in the Fed's interest rate drives investors away from gold and towards assets with a return, as the precious metal bears no interest.

There has not been an increase in the Fed's interest rate since June 2006, before the beginning of the American financial crisis. The current implied probability of a December rate hike is 79 percent, according to the CMEGroup's Fedwatch tool.

The market has now fully factored in the expected December rate hike, according to analysts.

But the market is now unsure of when the next hike, from a 0.50 rate to a 0.75 rate, will occur. The Fedwatch tool shows an implied probability indicating that the market believes that the Fed may raise rates from 0.50 to 0.75 during the March FOMC meeting.

Silver for March delivery fell 22.6 cents, or 1.60 percent, to close at 13.884 dollars per ounce. Platinum for January delivery dropped 12.2 dollars, or 1.43 percent, to close at 843.70 dollars per ounce. Endit