Gold hits highest in a year as rate hike expectations ebb

By Peter Hobson

LONDON (Reuters) - Gold held near its highest in more than a year on Friday as weak economic data lowered expectations of a December interest rate rise in the United States.

The dollar plunged to its weakest since early 2015 and U.S. bond yields held near 10-month lows, with the Federal Reserve expected to be more cautious after a rise in U.S. jobless claims and worries about the impact of hurricanes Irma and Harvey on economic growth.

A weaker dollar fuels demand for gold by making it cheaper for holders of other currencies and lower bond yields reduce the opportunity cost of owning non-yielding bullion. Interest rate rises meanwhile push up bond yields and boost the dollar.

Spot gold was down 0.2 percent at $1,346.45 at 1436 GMT after earlier hitting $1,357.54, its highest since August 2016. It was up 1.7 percent this week, on course for a third consecutive weekly gain.

U.S. gold futures for December delivery were 0.1 percent higher at $1,351.50.

Julius Baer analyst Carsten Menke pinned the rise to the weak dollar and hopes that interest rate rises would be delayed.

New York Federal Reserve President William Dudley in a speech on Thursday did not repeat an assertion three weeks ago that he expects to raise rates once more this year.

Demand for gold as a safe haven investment was meanwhile strong as South Korea braced for a possible further missile test by North Korea when it marks its founding anniversary on Saturday.

But high prices have weakened demand for physical gold in top consumer Asia.

Technical resistance was at $1,353, gold's peak in September last year, but upward momentum could lift it to the 2016 high of $1,375, ScotiaMocatta analysts said.

In other precious metals, silver was down 0.1 percent at $18.05 an ounce after touching $18.21, its best since April. It was on course for a 2.1 percent weekly gain.

Palladium was 1.9 percent lower at $937 an ounce and heading for a first weekly decline in seven weeks.

The metal used in catalytic converters that curb pollution from vehicle exhausts is trading near its highest since 2001. But car output in China and the United States is falling and shortages of metal are unlikely, said Capital Economics analyst Simona Gambarini in a note.

She said palladium looked increasingly vulnerable to profit taking and would likely fall to $850 by the end of the year.

Platinum was down 0.5 percent at $1,010.60, having earlier touched $1,022.70, its highest since March.

(Additional reporting by Apeksha Nair in Bengaluru; Editing by David Goodman/Alexander Smith)