Gold steady as market awaits signals on US rates, taxes

Gold steady as market awaits signals on US rates, taxes
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LONDON (Feb 22): Gold was steady on Wednesday, but investors were nervous as they looked for new signals on whether US interest rates would rise in March and on US President Donald Trump's tax plans.

"We see the risks as pretty binary in the gold market," Carsten Menke, commodities research analyst at Julius Baer in Switzerland, said.

"We still think the FOMC will go for a rate hike in March, which is not yet priced in, so we could see quite a bit of a setback towards US$1,200 or below."

Traders are awaiting the minutes from the US Federal Reserve's last meeting, due at 1900 GMT on Wednesday.

"On the other hand, if Trump comes along with more tweets or executive orders, than we might well see more (investment) inflows," Menke said, suggesting the purchase of out-of-the-money call options.

Spot gold had edged up 0.2% to US$1,237.99 per ounce by 1100 GMT, while US gold futures were unchanged at US$1,238.90. Spot gold dropped as much as 1% to touch a one-week low of US$1,225.73 in the previous session.

"We are relatively agnostic on the outlook for gold, with our 3-, 6-, and 12-month targets at US$1,200, US$1,200 and US$1,250 an ounce respectively," Goldman Sachs said in a note.

"Our economists expect three rate hikes in 2017 and see the probability of a rate hike by June at 80%, and we see US long dated real rates rising slightly, placing downward pressure on gold."

The US dollar, which was boosted by hawkish comments from various Fed officials in the previous session, was firm on Wednesday.       

Philadelphia Fed President Patrick Harker suggested he would support an interest rate increase at a mid-March policy meeting as long as inflation, output and other data until then continue to show the US economy is growing.             

Gold is highly-sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion, while also boosting the US dollar.

Investors were also awaiting an address by Trump to Congress due next week at which he is expected to announce tax policies.

Among other precious metals, spot silver rose 0.3% to US$17.99 an ounce.

Platinum rose 0.4% to US$1,002.70, while palladium added 0.1% to US$779.63.