Gold up on early dollar weakness, but gains seen limited

Last Updated: Wed, Oct 19, 2016 10:57 hrs
International Jewellery Week

Gold prices rose on Tuesday, supported by weakness in the U.S. dollar index, though receding worries about the outcome of the U.S. election and expectations of a U.S. rate increase in December could mean lower levels.

Spot gold was up 0.6 percent at $1,262.84 an ounce at 2:49 p.m. EDT (1849 GMT), holding just below the 200-day moving average. U.S. gold futures settled up 0.50 percent at $1,262.90.

The U.S. currency fell by as much as 0.3 percent, prior to paring losses as it retreated from Monday's seven-month high against a basket of currencies, making dollar-denominated gold cheaper for holders of other currencies.

U.S. consumer prices rose in September, suggesting a steady build-up of inflation pressures that could keep the Fed on track to raise interest rates in December.

According to CME Group's FedWatch program, the chances of the U.S. Fed hiking rates in December are about 70 percent. A rate hike is typically a source of pressure for bullion prices.

"People are waiting for December to see what happened with the Fed, over the next month or so there could be a little more downside," Warren Patterson, commodity strategist at ING, said.

"There's also more optimism that Hillary Clinton will probably win the election."

Traders said the U.S. election polls were partly behind funds cutting speculative positions, but that was offset to an extent by investors' rising interest in physically backed gold exchange traded funds.

Overall gold holdings in ETFs at 57.433 million ounces are up more than 2 percent since Sept. 15.

A Reuters survey of delegates at a conference in Singapore showed gold prices rising to almost $1,350 by October 2017 as higher physical demand offsets losses due to a Fed rate rise.

"Looking ahead, the coming quarters may present significant headwinds to the global economic outlook and as a result could see investment demand for gold pick up considerably," said Sucden Financial in a note.

"However, with sentiment torn between a President Trump scenario, which has buoyed investment demand, and the Fed tightening in December, which erodes the need for a safe haven, we anticipate price activity throughout the remainder of the year to trade with increased volatility."

Silver was up 1 percent at $17.61 an ounce, while palladium was up 0.5 percent at $640, up from Friday's three-month low.

Platinum rose 0.9 percent to $945 an ounce, up from a 7-1/2-month low of $923 reached on Monday.

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