Higher US dollar pressures gold, uncertainty supports

Higher US dollar pressures gold, uncertainty supports
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LONDON (Feb 21): Gold fell on Tuesday as reinforced expectations of an increase to US interest rates next month pushed the US dollar higher, though political and economic uncertainty in Europe and the United States are likely to offer continued price support.

Spot gold was down 0.7% at US$1,229.60 an ounce by 1016 GMT but has still gained more than 6% since the start of the year.

The US dollar strengthened after Federal Reserve members pointed to the potential for higher US rates next month, making commodities priced in the currency more expensive for non-US buyers.       

"Gold is capped by the likelihood that US monetary policy will be tighter at some stage, potentially in March," said Societe Generale analyst Robin Bhar.

"There is a lot of political uncertainty, there are safe-haven flows going into gold."

Bhar added that gold is also an investment hedge against corrections in what look to be overvalued equities.

Investor demand for gold can be seen in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, holdings of which have risen by more than 5% to 27.044 million ounces since Jan 31.             

Major US indices — the Dow Jones Industrial Average and the S&P 500 — have hit consecutive record highs in recent days.           

"Gold's resilience is all the more impressive considering US equities are setting record after record, while the US dollar is also fairly strong," said INTL FCStone analyst Edward Meir.

Meir added that support comes from a "myriad political and economic uncertainties" that lie ahead in 2017.

Traders' attention on Tuesday will focus on speeches by a number of Federal Reserve presidents, looking for clues on the timing of US rate rises.            

Also on the radar is US President Donald Trump's address to Congress on Feb 28, which analysts and traders hope will offer detail on infrastructure spending and tax cuts.

Technical support is around the 21-day moving average near US$1,221 an ounce, while US$1,250 presents a major barrier, analysts say. A break higher will meet Fibonacci resistance at US$1,255.

Elsewhere, silver fell 0.8% to US$17.86 an ounce, platinum lost 1.2% to US$988.25 and palladium ceded 1% to US$764.40.