Gold settles at nearly 8-week high

MarketWatch/Wallace Witkowski & Rachel Koning Beals/08-01-17

Gold futures rose Tuesday to notch their highest settlement in nearly eight weeks as lackluster economic data raised questions about whether the Federal Reserve will follow through with another rate increase this year.

…Gold reversed losses from earlier in the session as a report showed consumer spending rose just 0.1% in June, matching the smallest increase of 2017. The result was in line with the consensus produced by a MarketWatch survey of forecasters. A closely watched snapshot of core inflation within the report, the Federal Reserve’s favorite inflation gauge, edged up a tepid 0.1% that month.

…Because of recent signs of softer inflation, market observers have cut back their expectations for Fed rate increases. A slower pace of rate increases can be supportive for precious metals’ prices.

“I think the psychology developing over the past several months is that the Fed is expected to be more hawkish and aggressive, but I don’t believe that’s going to come to fruition,” said Peter Hug, global trading director at Kitco Metals, in an interview.

Hug doesn’t see the economy as being strong enough to support another rate increase this year or for an aggressive reduction of the Fed’s $4.5 trillion balance sheet, which can also serve to tighten monetary policy.

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