July 30, 2018 / 9:37 AM / 10 months ago

PRECIOUS-Gold steady ahead of U.S. monetary policy meeting

    * Gold's correlation with dollar intact
    * Market looking for clues to timing of U.S. rate rises

 (Recasts, adds comment, changes dateline from Bengaluru)
    By Pratima Desai
    LONDON, July 30 (Reuters) - Gold steadied on Monday ahead of
a meeting of the U.S. Federal Reserve this week which could
yield clues to the future direction of U.S. interest rates and
the dollar, key factors for precious metal prices.
    Spot gold        was unchanged at $1,222.99 an ounce at 1123
GMT compared with a one-year low of $1,211.08 hit earlier this
month. U.S. gold futures         were 0.1 percent lower at
$1,222.00 an ounce.
    A higher U.S. currency makes dollar-denominated gold more
expensive for holders of other currencies, which could subdue
demand. Dollar gains since the middle of April have led to
losses of about 10 percent for spot gold.       
    "Gold is still a dollar story and I see no sign of the
correlation breaking down," said Oliver Nugent, commodities
strategist at ING, adding that a significant driver for dollar
gains has been safe haven flows due to trade tensions.
    "Lack of investor interest is leading gold to behave like a
currency, there are no safe haven flows to gold."
    The United States signalled last week it is set to push
ahead with talks with Canada and Mexico after agreeing to
suspend hostilities over tariffs with Europe in a deal that may
clear the way for renewed pressure on China.             
    The U.S. central bank's two-day meeting which starts on
Tuesday is expected to keep benchmark interest rates steady
after hiking in June, but investors will be looking for clues to
the timing of the next rise.
    Expectations are for two more rate rises this year and three
next year.        
    "Higher U.S. interest rates create an opportunity cost for
investors," a gold trader said, referring to gold earning no
interest or dividends while costing money to insure and store. 
    A lack of investor interest can be seen in the holdings of
the largest gold-backed exchange-traded-fund (ETF), New York's
SPDR Gold Trust      , which at 25.727 million ounces have
tumbled about 8 percent since April.
    Hedge funds and money managers increased their net short
position in COMEX gold contracts to a record high in the week to
July 24, U.S. Commodity Futures Trading Commission (CFTC) data
showed on Friday.             
    Investors added 5,001 contracts to their net short position,
bringing it to 27,156 contracts, the biggest on records dating
back to 2006, CFTC data showed.
    Silver        was up 0.2 percent at $15.49 an ounce,
platinum        added 0.1 percent to $826.30 and palladium 
       gained 0.3 percent to $923.4.

 (Additional reporting by Apeksha Nair in Bengaluru; editing by
Jason Neely and David Evans)
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