Spot gold outperforms futures as dollar weakens

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Gold futures settled lower on Wednesday, but spot prices rose as a weaker dollar and lingering geopolitical tensions helped offset selling pressure from a record rally in U.S. equities.

Spot gold was up 0.2 percent at $1,283 an ounce, while U.S. gold futures for December delivery underperformed spot, falling $1.80 on the day to close at $1,283.40 an ounce.

The dollar softened as traders focused on riskier assets, while speculation the European Central Bank will resort to monetary stimulus also triggered some interest in bullion, traders said.

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On Wednesday, Ukraine accused Russian forces of launching a new military incursion across its border, a day after the leaders of both countries agreed to work toward ending a separatist war in the east of the country.

"The numerous sources of geopolitical crisis are evidently preventing the gold price from slumping," said Eugen Weinberg, head of commodity research at Commerzbank.

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He said gold was currently trading around a key technical support at its 200-day moving average near $1,285 an ounce, but a possible dollar rally and rising U.S. equities could still pressure bullion prices.

Gold / US Dollar Spot

The yellow metal was on track to post a second consecutive day of gains while the S&P 500 equities index hovered around the 2,000 mark near its record high.

Gold was also supported after German consumer sentiment showed its biggest drop in more than three years.

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Also underpinning gold was ECB President Mario Draghi's call last week for more action on both the monetary and fiscal fronts.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund and a gauge of investor demand, fell 0.4 percent to 797.09 tons on Monday from 800.08 tons on Friday.

—By Reuters