Gold prices steady as US dollar holds near 14-year peak

[BENGALURU] Gold was little changed on Wednesday, after hitting a three-week high in the previous session, with the US dollar hovering near a 14-year peak against a basket of major currencies.

Spot gold was mostly unchanged at US$1,159.05 an ounce by 0311 GMT. Bullion prices rose on Tuesday as high as US$1,163.52, the highest since Dec 14.

US gold futures fell 0.2 per cent to US$1,160.10 per ounce.

"The market sentiment is too cautious ... there are political events that are ongoing, we expect the group appetite to remain cautious at least for the time being," said Barnabas Gan, an analyst at OCBC Bank in Singapore.

The US dollar index, which measures the greenback against a basket of currencies, was at 103.35 after climbing to 103.82 the previous day, its strongest since December 2002.

A firm US dollar curbs demand for commodities priced in the greenback by making them more expensive for holders of other currencies.

US factory activity accelerated to a two-year high in December amid a surge in new orders and rapidly rising raw material prices, indicating that some of the drag on manufacturing from prolonged US dollar strength and a slump in oil prices was fading.

Other data on Tuesday showed US construction spending hit a 10-1/2-year high in November, providing a boost to a fourth-quarter economic growth estimate. The reports suggested President-elect Donald Trump would inherit a strong economy, with a labour market that is near full employment, from the Obama administration.

Strong US economic data helped underscore expectations that the Federal Reserve would raise interest rates at a faster pace this year, which would dampen the appeal of non-interest paying gold.

The Federal Reserve, which hiked rates early December, signalled three more increases in 2017 from the previous projection of two.

"(Rising interest rates) should cause the greenback to turn firmer, as a result, gold being a US dollar-denominated commodity asset should fall," Mr Gan said.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, dropped 1.01 per cent to 813.87 tonnes on Tuesday. Holdings are down about 14 per cent since the US presidential election in November.

Among other precious metals, silver was up 0.5 per cent at US$16.35 an ounce, after hitting near three-week highs in the last session.

Platinum dipped over 1 per cent at US$927.30, after rising over 4 per cent in the previous session.

Palladium was down 0.1 per cent at US$708.72 an ounce. The metal climbed over 4.5 per cent on Tuesday.

REUTERS