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Gold turns positive after touching 2-1/2 week low

[NEW YORK] Gold steadied after touching a 2-1/2 week low on Wednesday on reports that Republican senators favoured John Taylor to become the next head of the US Federal Reserve, which drove US bond yields to multi-month highs.

The Stanford University economist is seen as someone who would raise interest rates at a quicker pace. Gold is sensitive to rising US interest rates because they push up bond yields and tend to strengthen the dollar.

"If he (US President Donald Trump) does indeed choose Taylor, gold is likely to fall sharply," Commerzbank analysts said in a note.

The market was pricing in one rate increase in December and one more next year, while the Fed itself envisaged three rate hikes in 2018 and was likely to move more rapidly than previously expected under Mr Taylor.

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While that kept prices of the precious metal under pressure, geopolitical risk pulled bullion prices back from earlier losses.

A senior diplomat in North Korea said the foreign minister's warning of a possible atmospheric nuclear test over the Pacific Ocean should be taken literally.

North Korean Minister of Foreign Affairs Ri Yong Ho said in September that Pyongyang may consider conducting "the most powerful detonation" of a hydrogen bomb over the Pacific Ocean amid rising tensions with the United States.

"I don't think the North Korea news makes gold prices sustainably higher, unless these headlines come to some actual conflicts," said Ryan McKay, commodity strategist at TD Securities in Toronto.

Spot gold was up 0.02 per cent at US$1,276.61 an ounce by 2.17pm EDT (1817 GMT), after hitting US$1,271.11, the lowest since Oct 6.

US gold futures for December delivery settled up 70 cents, or 0.05 per cent, at US$1,279 per ounce.

Bullion prices were hovering just above its 100-day moving average at US$1,275.

Upbeat US durable goods and home sales data also bolstered the case for interest rate hikes, helping push US 10-year Treasury yields to the highest since March and yields on 30-year bills to the highest since May.

The dollar, however, weakened as the euro rose ahead of a European Central Bank meeting on Thursday and sterling gained on stronger-than-expected UK growth data.

A weaker dollar makes dollar-denominated gold cheaper for holders of other currencies, but higher bond yields reduce the appeal of non-yielding bullion, dampening demand.

In other precious metals, silver was down 0.06 per cent at US$16.93 an ounce.

Platinum was down 0.22 per cent at US$917.99 an ounce and palladium was down 0.3 per cent at US$959.22 an ounce.

REUTERS