May 11, 2017 / 3:43 AM / in 8 months

PRECIOUS-Gold inches up as dollar weakens

    * Spot gold may test support at $1,209/oz -technicals
    * Dollar down 0.1 pct after hitting 8-wk high vs yen
    * Bank of England interest rate decision at 1100 GMT

 (Updates prices)
    By Swati Verma
    BENGALURU, May 11 (Reuters) - Gold edged up on Thursday as
the U.S. dollar weakened, although the prospect of a U.S. rate
increase in June kept prices just above eight-week lows hit
earlier this week.
    Spot gold        was up 0.2 percent at $1,220.86 per ounce
by 0738 GMT. Gold hit an eight-week low of $1,213.81 on Tuesday.
    U.S. gold futures         also gained 0.2 percent, to
$1,221.10 an ounce.
    "Combined with a moderation in confrontational foreign
policy rhetoric from the Trump administration in May, a 'market
friendly' election result in France is helping to unwind demand
for gold to hedge against political risk," BMI Research said in
a note.
    "Receding risk aversion in Europe and hawkish language from
the U.S. Federal Reserve will cap gold demand in the near term,"
BMI added, cutting its 2017 average gold price forecast to
$1,250 per ounce from $1,300.
    The Fed should hike interest rates three more times this
year, Boston Fed President Eric Rosengren said on Wednesday.
    Markets are pricing in around a 90-percent chance that the
economy is strong enough for the Federal Reserve to raise
interest rates at its meeting next month.
    Gold is highly sensitive to rising rates, which lift the
opportunity cost of holding non-yielding assets such as bullion,
while boosting the dollar, in which it is priced.
    The dollar edged lower after notching an eight week high
against the yen in Asian trade.       
    Spot gold is expected to test support at $1,209 per ounce, a
break below which could cause a further loss to the next support
at $1,188, according to Reuters technical analyst Wang Tao.
    "From a pure technical-fundamental aspect, everybody would
be eying $1,200 as the next level of support, but I think $1,215
support here is not out of the question," said Spencer Campbell,
general manager with Kaloti Precious Metals in Singapore.
    "We have seen some ETF liquidation as people are feeling a
little bit more comfortable politically," Campbell said.
    Holdings of SPDR Gold Trust      , the world's largest
gold-backed exchange-traded fund, have fallen over 8 tonnes in
the past two weeks.          
    "Military exercises are being expanded across Asia, in
particular the Korean Peninsula. The lack of news in that
particular area has taken the edge off the prices of gold, so
the pull back has been inevitable."
    Spot silver        gained 0.9 percent to $16.28 an ounce. 
    Platinum        was up 1 percent at $917.40, and palladium
       rose 0.4 percent to $800.98 an ounce.

 (Reporting by Swati Verma in Bengaluru; Editing by Richard
Pullin and Joseph Radford)
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