February 23, 2017 / 11:49 AM / 2 years ago

PRECIOUS-Gold at 3-1/2-month high as Fed dampens rate hike expectations

    * Gold hits highest since Nov. 11
    * Fed minutes reduce expectations of March rate hike
    * Investors look to Trump's address to Congress on Feb. 28
    * GRAPHIC-2017 asset returns: tmsnrt.rs/2jvdmXl

 (Updates prices; adds comment, byline, NEW YORK dateline)
    By Marcy Nicholson and Peter Hobson
    NEW YORK/LONDON, Feb 23 (Reuters) - Gold prices rose 1
percent to a 3-1/2-month high on Thursday after minutes from the
latest Federal Reserve policy meeting further dampened
expectations for an interest rate hike in March, lowering U.S.
bond yields and pressuring the dollar. 
    Spot gold        was on track for its biggest daily gain
since Feb. 6, and was up 1 percent at $1,249.36 an ounce by 2:28
p.m. EST (1928 GMT), after rising to $1,251.14 an ounce, its
highest since Nov. 11.
    U.S. gold futures         settled up 1.5 percent at
$1,251.40. 
    "The dollar's backed off, bond yields have backed off, and
that's given a bit of support for gold," said Robin Bhar at
Societe Generale.                                  
    A weaker dollar makes gold cheaper for holders of other
currencies, while lower yields reduce the opportunity cost of
holding non-yielding bullion. Higher interest rates would lift
yields.        
    Gold had been trapped in a range of around $1,220-$1,240
since early February, with unease over the European and U.S.
political outlook supporting demand for bullion as a safe haven
while the prospect of rising interest rates kept a lid on gains.
    "Gold investors should be paying close attention to upcoming
European elections," said Walter Pehowich, executive vice
president in charge of precious metals investments services for
Dillon Gage Metals.
    Pehowich noted that Marine Le Pen, leader of the French
National Front party, has increased her lead in the first round
of France's presidential election and has said she will put
together a referendum for France to exit the European Union if
elected.
    The move higher in gold prices could, however, be derailed
if U.S. stocks continue their rally, enticing investment away
from gold, said Jonathan Butler at Mitsubishi.     
    "This may in hindsight look like a one-day wonder," he said.
    Investors were looking ahead to an address by U.S. President
Donald Trump to Congress on Feb. 28.             
    "Currencies, the bond market, gold, will all take their cue
from what he says on Tuesday," Bhar said.
    More details on promised government spending, infrastructure
investment or tax cuts would likely push the dollar and U.S.
asset prices higher and gold lower. 
    "Should Trump become the feared 'unguided missile', which we
still believe is unlikely, safe-haven demand would increase even
more," Julius Baer analyst Carsten Menke said in a note.  
    Silver        was up 0.8 percent at $18.17 an ounce.
Platinum        was 0.7 percent higher at $1,009.90 an ounce,
and palladium        was up 0.3 percent at $770.75.

    
 (Additional reporting by Arpan Varghese; editing by Ruth
Pitchford and Chizu Nomiyama)
  
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