Gold edges up on weaker dollar, easing Fed rate hike worries

(Reuters) - Gold edged up slightly on Wednesday, recovering from the previous session’s losses, as the dollar slipped on expectations that the U.S. Federal Reserve was unlikely to raise interest rates next week.

A saleswoman displays a gold bracelet as she poses for pictures at a jewellery shop in Lin'an, China, in this July 29, 2015 file photo. REUTERS/China Daily/Files

Spot gold was trading up 0.2 percent at $1,321 an ounce at 0707 GMT. It touched a low of $1,315.27 on Tuesday, the lowest in more than one week.

U.S. gold futures were up 0.1 percent at $1,326.60 an ounce.

“There was some very volatile, algorithm driven price action today in the gold market, with the metal carving out an $8 range on moderate-to-good volume,” Alex Thorndike, senior precious metals dealer with MKS PAMP Group said.

“Gold is approaching the very important $1,300-$1,310 support zone, which has held incredibly well since the Brexit rally and will be a key focus for traders in the short term.”

Spot gold may revisit a low of $1,301.91 per ounce, as indicated by its wave pattern, Fibonacci retracement analysis and a falling channel, according to Reuters technical analyst Wang Tao.

Goldman Sachs further cut its view on the likelihood of a U.S. rate hike next week, dropping it to just 25 percent from 40 percent. But it said the chances of the next rate hike occurring at the Federal Open Market Committee’s (FOMC) December meeting have risen to 40 percent from 30 percent.

“Most expect Fed president Janet Yellen to give some warm-up for December hiking in next week’s meeting,” said Jiang Shu, chief analyst at Shandong Gold Group.

“We are slightly bearish on gold prices before the Fed meeting. Prices will touch $1,300 or below that shortly.”

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 index, which measures the greenback against a basket of six major currencies, fell 0.1 percent to 95.535.

A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.47 percent to 935.49 tonnes on Tuesday. [GOL/ETF]

Spot silver was up 0.7 percent at $18.98 an ounce. The metal fell over 1 percent in the previous session.

Platinum gained 0.5 percent at $1037.45. It fell over 2 percent to touch an over 2-month low of $1,026.10 on Tuesday. Palladium rose over 1 percent at $659.30. It hit a near 8-week low of $648.72 in the prior session.

Reporting by Swati Verma and Nallur Sethuraman in Bengaluru; Editing by Joseph Radford and Amrutha Gayathri