Gold rises as dollar retreats, Korean tensions support

By Marcy Nicholson and Pratima Desai

NEW YORK/LONDON (Reuters) - Gold prices rose on Thursday, nearing Tuesday's 9-1/2-month high as the dollar retreated after data showed the pace of U.S. annual inflation slowed, while rising security concerns triggered by tensions on the Korean peninsula provided safe-haven support.

The dollar index weakened after data showed U.S. annual inflation rose at its slowest pace since late 2015, which diminished expectations of an interest-rate increase by the Federal Reserve in December. The greenback fell further after U.S. Treasury Secretary Steven Mnuchin commented on tax reform.[USD/]

A falling U.S. currency, already near its lowest since 2015, makes dollar-denominated gold cheaper for holders of other currencies, which could boost demand. [FRX/]

Spot gold was up 0.8 percent at $1,319.31 an ounce by 2:05 p.m. EDT (1805 GMT), on track for a nearly 4 percent rise for August, which would be its strongest monthly performance since January. On Tuesday, it rose to a 9-1/2-month high at $1,325.94.

U.S. gold futures settled up 0.6 percent at $1,322.20.

"Gold bulls are energized after bullion defied an overnight push under $1,300 to close at new highs for the move," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.

"Secretary Mnuchin's comments suggesting that tax reform may not be revenue-neutral hamstrung the dollar, which helped drive the gold rally."

Some of this month's gain came after North Korea fired a missile over Japan. That was followed two days later by South Korea's air force conducting an exercise with two U.S. nuclear-capable bombers above the Korean peninsula on Thursday.

"The situation in Korea encouraged interest in gold, and the weaker dollar has lifted gold," Oxford Economics commodities analyst Dan Smith said.

"We don't know what's going to happen with geopolitics, but we seem to be in a fairly stable environment in terms of the macro picture, which should mean limited upside for gold."

Oxford Economics expects the gold price to average $1,265 in the fourth quarter and $1,270 next year.

Holdings of gold in physically backed exchange traded funds have eased slightly from Monday's nearly six-week high. [GOL/ETF]

"The North Korean missile test ... helped gold burst decisively through $1,300/ounce triple-top resistance," INTL FCStone analyst Edward Meir said in a note. "It will be interesting to see if further chart-based buying materializes now that this triple-top has been breached, especially on any dips."

Elsewhere, silver rose 0.9 percent to $17.53 an ounce, platinum gained 0.7 percent to $993.53, and palladium added 0.8 percent to $935.

(Additional reporting by Arpan Varghese in Bengaluru; Editing by Susan Thomas and Lisa Von Ahn)