Gold steadies off 2-week low as dollar rally loses steam

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Gold was steady after initially falling to a two-week low on Wednesday, as the dollar retreated from a one-month high, but the precious metal remained under pressure from expectations that a U.S. rate increase may come soon.

Spot gold was up 0.1 percent at $1,187.70 an ounce, after hitting $1,183.76 an ounce, the lowest since May 12. U.S. gold futures for June delivery settled down $1.30 at $1,185.60.

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Gold had dropped 1.7 percent on Tuesday after firmer U.S. data supported the view that the U.S. Federal Reserve may raise interest rates this year.

"Gold got hit by a double whammy yesterday, first of all from the dollar move higher, which kicked off on Friday, but also speculative data which showed a 140 percent jump as of last Tuesday," Saxo Bank's head of commodity research Ole Hansen said.

"Today we have stabilised once again ahead of the 1170/80 band of support."

Gold is going lower
Gold is going lower

Positive data on U.S. business investment spending, consumer confidence and house prices on Tuesday was in line with Fed Chair Janet Yellen's comments last week that indicated the U.S. central bank is poised to raise rates later this year.

The euro stabilized in volatile trading and stocks rose after reports that Greece and its creditors had reached an agreement that will provide it with debt relief.

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"I think there's still a little bit of risk getting priced into gold, which is why it's showing consolidation," said Eli Tesfaye, senior market strategist for brokerage RJO Futures in Chicago.

"There's not a lot of pressure to sell it and a lot of technical sellers are not going to get aggressive until it starts going below $1,175."

Tuesday's gold price drop did little to stimulate demand from price-sensitive consumers in Asia, dealers said.

"Following the overnight rout, we were expecting to see some interest from Asia during today's session, however aside from a moderate level of support courtesy of Chinese trade, interest was generally muted," MKS said in a note.