Gold steady as dollar gains amid U.S. rate hike expectations

A 1000 gram gold bar is seen at the Kazakhstan's National Bank vault in Almaty
A 1000 gram gold bar is seen at the Kazakhstan’s National Bank vault in Almaty, Kazakhstan September 15, 2017. REUTERS/Mariya Gordeyeva

By Vijaykumar Vedala

(Reuters) – Gold prices were little changed on Thursday after upbeat U.S. economic data bolstered the prospects of interest rate increases next month and beyond by the Federal Reserve.

Spot gold was nearly unchanged at $1,278.55 per ounce at 0354 GMT. On Wednesday, gold touched a session high of $1,289.09, a peak since Oct. 20, before paring gains and ending the session about 0.2 percent lower due to a stronger dollar.

U.S. gold futures for December delivery gained 0.1 percent $1,277.80.

“It (gold’s range bound movement) is a combination of Fed rate hike (expectations) and equity market volatility. There are increasing risks in the market now,” said Argonaut Securities analyst Helen Lau.

“Views around these two countering forces could keep gold flat in the short-term,” she added.

Higher interest rates tend to boost the dollar and push bond yields up, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.

Underlying U.S. consumer prices increased in October, strengthening the view that a recent disinflationary trend worrying the Fed probably had ended.

Falling unemployment and sustained growth mean the U.S. economy has accelerated beyond a sustainable level so the Fed should continue to raise interest rates, including next month, veteran Fed policymaker Eric Rosengren said on Wednesday.

Spot gold remains neutral in a range of $1,270-$1,286 per ounce, and an escape could suggest a direction, according to Reuters technical analyst Wang Tao.

“It is perhaps best to remain sidelined for now, as the gold complex seems to be trapped within a relatively tight trading range and has yet to assert a meaningful direction,” INTL FCStone analyst Edward Meir said in a note.

Asian shares got off to a cautious start on Thursday after Wall Street stumbled despite upbeat U.S. economic news and the Treasury yield curve hit its flattest in a decade.

The dollar index, which tracks the U.S. currency against a basket of six major rivals, edged up 0.1 percent.

In other precious metals, palladium was flat at $984.22 an ounce. On Wednesday, it touched a low of $973.40, a bottom since Oct. 31, and fell for the fifth straight session.

Silver was unchanged at $16.99 per ounce, while platinum was down 0.1 percent at $930.

(Reporting by Vijaykumar Vedala in Bengaluru; Editing by Amrutha Gayathri and Richard Pullin)

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