May 17, 2017 / 2:31 PM / 2 years ago

PRECIOUS-Gold surges as Trump turmoil hits dollar, U.S. yields

    * Gold up 1.8 pct in fifth day of gains
    * Breaks above technical resistance at $1,245
    * Scandals dampen hopes of Trump stimulus
    * Dollar falls to lowest since Nov. 9

 (Updates prices)
    By Peter Hobson
    LONDON, May 17 (Reuters) - Gold rose to its highest in two
weeks as political turmoil and weak economic data in the United
States reduced expectations of aggressive interest rate rises
this year, pushed down U.S. bond yields and drove the dollar to
its lowest in six months.    
    Lower yields reduce the opportunity cost of holding
non-yielding gold, while a weaker dollar makes bullion cheaper
for non-U.S. investors. Higher interest rates would push yields
up and likely boost the dollar. 
    Spot gold        rose for a fifth day and was up 1.8 percent
at $1,258.38 an ounce at 1414 GMT, after hitting $1.259 an
ounce, the highest since May 1. It is on track for its biggest
rise since June last year. 
    U.S. gold futures         were 1.7 percent higher at
$1,257.80 an ounce.
    "Downward movement in yields and the dollar have given
support to gold," ABN AMRO analyst Georgette Boele said. "And on
top of this you get political uncertainty which is denting the
    U.S. President Donald Trump is under pressure to explain
whether he tried to interfere with a federal investigation after
reports that he asked then-FBI Director James Comey to end a
probe into his former national security adviser Michael Flynn.
    That follows a turbulent week after Trump fired Comey and
discussed sensitive national security information with Russia's
Foreign Minister. 
    This has led investors to question whether Trump can push
through tax cuts and deregulation and fuelled demand for
safe-haven assets including gold.                   
    The dollar fell to its lowest since Trump was elected in
November and is likely to drop further, Boele said. Stocks fell
and ten-year U.S. bond yields were at the lowest level since
April 21.                          
    An unexpected fall in U.S. homebuilding meanwhile added to a
run of weak economic data, raising new doubts about how many
times the Federal Reserve will raise interest rates this year.
    Futures traders are pricing in a 66 percent chance of a June
rate rise, down from around 90 percent earlier this month,
according to CME's FedWatch Tool.            
    On the technical side, gold broke above resistance at its
200-day moving average and Fibonacci retracement, both at around
$1,245, triggering technical buying. 
    If gold can hold above that level it could rise to its
long-term downtrend line at $1,287 an ounce, said technical
analysts at Commerzbank.
    Gold imports to major consumer India will however drop back
sharply later in the year following a strong first quarter, the
World Gold Council said on Wednesday.             
    Silver        was 1.1 percent up at $17.01 an ounce and
platinum        was 1 percent higher at $946.70 an ounce.
Palladium        was down 1.7 percent at $780.20.

 (Additional reporting by Vijaykumar Vedala and Swati Verma in
Bengaluru, editing by Ed Osmond and Susan Thomas)
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