Gold hits 3-1/2 month high on talk of delay to Fed rate rise

Subdued inflation data from China earlier underpinned a growing view that the world’s second largest economy was losing momentum

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Gold rose to 3-1/2 month highs on Wednesday as soft U.S. data and concerns over deflationary pressures in China fuelled expectations the Federal Reserve will hold off raising interest rates, pressuring stocks and the dollar.

The dollar fell to fresh 3-1/2 week lows versus a currency basket after weaker-than-expected readings of domestic retail sales and producer prices further cut expectations the Fed would raise rates later this year.

Subdued inflation data from China earlier underpinned a growing view that the world’s second largest economy was losing momentum, which could also defer Fed action.

Spot gold peaked at $1,178.30 an ounce, its highest since June 30, and was at $1,173.06 an ounce at 1400 GMT, up 0.4 percent. U.S. gold futures for December delivery were up $7.70 an ounce at $1,173.10.

“The U.S. retail data have taken all the singing and dancing away from the U.S. dollar, which is under heavy selling pressure and hence we are experiencing another massive upward move for the precious metal,” Naeem Aslam, chief market analyst at Ava Trade, said.

“The data represents the most naked form of consumer confidence and it showed that the U.S. consumers are holding back... This has pushed out the rate hike expectations which was the biggest curse for the yellow metal."

Gold, which as a non-yielding asset tends to benefit from ultra-low rates, has rallied more than 5 percent since a weak U.S. jobs report on Oct. 2 fuelled speculation the Fed would postpone its first rate hike in nearly a decade until 2016.

The Fed cited concerns about the global economy when refraining from hiking rates at its September meeting, although Fed Chair Janet Yellen said later the central bank was on track to raise rates this year.

However, Fed Governor Daniel Tarullo said on Tuesday the Fed should not hike interest rates this year, in comments that point to sharp divisions within the U.S. central bank over America’s readiness for higher rates.

In Asia, home of the main physical gold markets, there was some decent interest in gold overnight, MKS said in a note.

“Gold oscillated between $1,167-1,169 in the lead-up to the Shanghai Gold Exchange open this morning, yet once they came in some decent buying was seen - mainly on Ecomex - which was sufficient to rocket gold through $1170 to $1174, tripping stop buying through the August high of $1170,” it said.

Among other precious metals, silver was up 1.1 percent at $16.08 an ounce, platinum was up 0.2 percent at $989.25 an ounce, and palladium was up 2.2 percent at $694.25 an ounce.