Gold rebounds as dollar falls on U.S. growth data

BY

Gold bounced back in Europe on Friday as the dollar sharply fell after a government report showed weaker-than-expected U.S. economic growth in the second quarter, lowering expectations for an interest rate hike.
Spot gold <XAU=> fell as low as $625.60 an ounce before rebounding to $636.00/637.50 by 1411 GMT, against $633.50/634.25 in New York late on Thursday.

The U.S. Gross domestic product grew at a 2.5 percent annual rate in the April-June quarter, well below Wall Street analysts' forecasts for 3 percent and less than half the robust 5.6 percent rate registered in the first quarter.

The U.S. Federal Reserve has signalled it expects an economic slowdown to cool inflation, stoking expectations of a pause in a two-year credit tightening campaign.

A rise in the interest rate tends to help the dollar and is generally negative for gold. Gold often moves in the opposite direction to the U.S. currency as some people use it as an alternative investment.   Some traders said people were nervous in the market because of a lack of clear direction and gold was expected to remain to volatile in the coming days.
Going forward, dollar movements will likely dictate near-term gold direction.
Traders said concerns over the situation in the Middle East may prevent gold from falling sharply also.   Gold is generally seen as a hedge against inflation.

[ Last edited by BY on 2006-7-29 at 12:58 AM ]