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Gold slips from 3-1/2 month peak as US dollar edges higher

[LONDON] Gold eased from an earlier 3-1/2 month high on Wednesday and was on track for its first day of losses in nearly three weeks as a firmer US dollar pressured assets priced in the US currency.

The US dollar's late December retreat had driven gold sharply higher, leading to fears that the metal was becoming overbought.

Spot gold was down 0.1 per cent at US$1,316.56 an ounce at 1230 GMT on Wednesday, off an earlier peak of US$1,321.33.

"It's still the US dollar that is still very much in the driving seat for gold," said Julius Baer analyst Carsten Menke. "We're bearish on the euro versus the US US dollar, so if that materialises, and this close relationship holds between gold and the US dollar, it should move towards US$1,225 or so."

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The US dollar rose 0.3 per cent against the euro in early trade, though it remained near a four-month low after declining nearly 3 per cent in the past three weeks.

Investors are awaiting manufacturing data and minutes of a December US Federal Reserve meeting due later in the day, which will be closely watched for clues on the outlook for US monetary policy.

Gold, which as a non-yielding asset is highly sensitive to rising interest rates, fell in the run-up to the third US interest rate rise of 2017 in December but quickly recovered, climbing 5 per cent from its mid-month low to the year's close.

Spot gold's 14-day relative strength index (RSI) touched 75 on Tuesday, it highest since September 2017. An RSI above 70 indicates a commodity is overbought and could herald a price correction, technical analysts say.

"Relative strength index shows the metal at overbought levels, which may lead to short-term selling," ScotiaMocatta analysts said in a research note.

US gold futures for February delivery were up US$1.40 an ounce at US$1,317.50.

Among other precious metals, palladium was down 1 per cent at US$1,080.99 after hitting a record high on Tuesday at US$1,096.50.

The metal soared 56 per cent in 2017 on fears that strong demand from carmakers for use in catalytic converters, chiefly in gasoline-powered vehicles, would tighten the market further after years of deficit.

"Palladium has more than doubled as compared with its multi-year low in mid-January 2016," Commerzbank said in a note.

"This precious metal is presumably being driven further up by concerns of ongoing shortages ... the diesel scandal is still playing its part in this, as it has generated high demand for cars with gasoline engines." Spot silver was down 0.4 per cent at US$17.11 an ounce after touching a six-week high of US$17.21 while platinum dipped by 0.1 per cent to US$942.40.

REUTERS