Gold advances over 1% as traders bet on Fed rate pause

July 18 (Reuters) – Gold rose over 1% on Tuesday to a more than one-month high, bolstered by a softer dollar and lower Treasury yields, with investors betting that recent US economic readings make the case for a pause in the Federal Reserve’s interest rate hikes.

Spot gold was up 1.1% at USD 1,975.49 per ounce by 2:03 p.m. ET (1803 GMT), after hitting the highest since late May. US gold futures settled 1.2% higher at USD 1,980.80.

The dollar index wobbled near more than a one-year low, making bullion more affordable to buyers holding other currencies. Benchmark Treasury yields ticked lower for the second straight day.

“Gold can certainly move towards USD 2,000 if incoming data suggests the Fed will back off after one more hike this month,” said Jim Wyckoff, senior market analyst at Kitco.

Gold traders also took stock of data showing headline US retail sales rose less than expected in June, though consumer spending appeared to be solid.

While the data boosted the idea of a less hawkish Fed by the end of this year, which would help gold, prices could fall to the USD 1,900 range if the central bank goes the other way, Wyckoff added.

Traders are pricing in another 25-basis-point rate hike at the Fed’s July 25-26 meeting.

Higher interest rates increase the opportunity cost of holding zero-yielding gold.

“Gold has now reached a key technical area around USD 1,980-USD 1,985, where it had previously found support and resistance. The bulls will need to see gold clear this level on a closing basis if they want to see USD 2,000 plus again,” Fawad Razaqzada, market analyst at City Index, said in a note.

Spot silver was up 0.6% at USD 25.01 per ounce, platinum rose 0.8% to USD 982.94 and palladium rose 2.5% to USD 1,315.91.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Paul Simao and Shounak Dasgupta)