Gold extends gains on geopolitical tensions but US rate view drags

[SINGAPORE] Gold added to overnight gains on Wednesday on a softer dollar and heightened tensions after Turkey shot down a Russian warplane, but the rally was capped on expectations of a US rate hike next month.

Turkey shot down the Russian jet near the Syrian border on Tuesday, saying the plane had violated its air space, in one of the most serious publicly acknowledged clashes between a NATO member country and Russia for half a century.

US President Barack Obama and French President Francois Hollande, meeting in Washington, urged against an escalation, while NATO Secretary-General Jens Stoltenberg said the military alliance stood in solidarity with Turkey.

The tensions triggered a sell-off in equities and the dollar, while boosting the safe-haven yen, gold and government debt.

Spot gold edged up 0.4 per cent to US$1,078.72 an ounce by 0331 GMT, following a 0.6 per cent gain on Tuesday. US gold rose 0.5 per cent, after a near 1 per cent gain in the previous session.

"Gold rose on flight-to-quality as investors sought protection from volatile financial markets in the wake of global stresses," said HSBC analyst James Steel.

"While we think gold may be supported, we are not anticipating a robust rally, and look for only moderate gains, with a lot of upside resistance," he said.

Despite the gains, gold wasn't too far from a near-six-year low of US$1,064.95 hit last week on increasing views that the Federal Reserve will hike US rates next month for the first time in nearly a decade.

Gold tends to benefit from ultra-low US rates, which lower the opportunity cost of holding non-yielding bullion.

Data on Tuesday supported views of a December rate hike. The US economy grew at a healthier clip in the third quarter than initially thought.

Traders will be eyeing more U.S. data due later on Wednesday, including weekly jobless claims and October new home sales, to gauge the strength of the economy.

Liquidity, however, could be thin ahead of the US Thanksgiving holiday on Thursday.

Among other precious metals, silver rose for a second session after dipping to a six-year low of US$13.86 earlier this week, while platinum was trading just above a seven-year low.

Palladium rose 0.3 per cent to US$537.05.

REUTERS