Gold pares gains as dollar comes off lows on US data

[NEW YORK] Gold pared gains on Wednesday as the US dollar came off its lows on strong data from the US service sector index.

Having touched its lowest since mid-August on Tuesday, spot gold was up 0.2 per cent at US$1,274.41 per ounce by 2.25pm EDT (1825 GMT). Earlier on Wednesday, it reached a high of US$1,282 per ounce.

US gold futures for December delivery settled up US$2.20, or 0.2 per cent, at US$1,276.80 per ounce.

"We had a number of days of decline in a row, and once we had some dollar softness, there was an excuse for gold to rally a little," said Rob Haworth, senior investment strategist at US Bank Wealth Management in Seattle.

A weaker dollar makes dollar-priced gold cheaper for non-US investors.

Investors would be listening closely to comments by Fed Chair Janet Yellen later Wednesday at a Federal Reserve Bank of St Louis event, for more hints about possible US interest rate increases through 2018, Mr Haworth added.

The greenback eased against a currency basket after a Politico report said Fed Governor Jerome Powell was favoured by US Treasury Secretary Steven Mnuchin as the new Fed chair over former governor Kevin Warsh.

Ms Yellen's term expires in February.

Mr Powell is seen as more dovish than Mr Warsh, who has criticised the Fed's bond-buying program in the past.

Dollar money market futures were pricing in about a 70 per cent chance of a rate hike by December, but a more dovish Fed candidate would likely prompt investors to bet on a slower retreat from the current loose monetary policy.

The US dollar pared its losses after data showed a service sector index increasing to its highest level in more than 12 years.

Global equities hit a fresh intra-day high, helped by signs of strong economic growth worldwide, boosting the likelihood that the Fed will raise rates at its December meeting.

Soaring equities tend to dent the appeal of gold, seen as a safe haven.

"We still feel comfortable with our cautious view on gold as the rebound of the dollar should continue while the slide in (gold) prices increases the risk of further position squaring in the futures market and could trigger selling in the physical market," said Julius Baer in a note.

Silver dipped 0.04 per cent at US$16.59 an ounce.

Platinum rose 0.7 per cent at US$913.70 an ounce, while palladium climbed 1.1 per cent at US$925.40 per ounce. The sister metals, widely used as autocatalysts, hit price parity for the first time in 16 years last week.

REUTERS