Gold retreats from 6-week peak on strong dollar

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Gold seesawed on Wednesday as the stronger dollar undermined confidence, but investor buying interest due to political uncertainty is seen supporting prices this year.

Spot gold was up 0.3 percent at 1,191.20 an ounce. U.S. gold futures gained 0.46 percent to $1,190.9.

Marc Faber on gold
Marc Faber on gold

The trigger for early gains was nervousness ahead of U.S. President-elect Donald Trump's first formal news conference at 1600 GMT. Investors will focus on what Trump has to say about trade, relations with China and plans for the economy.

"Trump's upcoming news conference seems to be the main highlight of the day and the dollar is said to be moving up on account of this," said INTL FCStone analyst Edward Meir.

Analysts say elections over the course of the year in France, the Netherlands and Germany are likely to create political tensions in the European Union and support gold.

"The uncertainty surrounding Brexit could lead to further demand for gold from retail investors in the UK," Quantitative Commodity Research analyst Peter Fertig said.

A higher U.S. currency, near a 14-year peak against a basket of currencies, makes dollar-denominated commodities more expensive for holders of other currencies.

Further gains for the dollar due to U.S. rate hikes during the course of the year are possible. U.S. Federal Reserve policy makers in December signaled the possibility of three rises this year.

That may mean higher U.S. Treasury yields, making it cheaper for investors to buy U.S. government bonds, which like gold are seen as risk-free. But unlike gold which earns nothing and costs to insure and store, Treasuries earn regular coupons.

On the technical front, upside resistance kicks in around $1,194, the 55-day moving average, though traders say breaking back above $1,200 would need strong momentum.

Elsewhere, silver was down 0.46 percent at $16.77 an ounce from Tuesday's four-week high of $16.90.

Platinum fell 0.52 percent to $977.70 from an earlier two-month peak at 982.60 and palladium dropped more than 1 percent to $753.80 an ounce.

touched a five-week high of $768.1 on Monday.

Investors expect the industrial precious metal will benefit if tax cuts and higher government spending in the major car markets of China and the United States boost auto sales.

Gold is best way of hedging against dollar decline: Strategist
Gold is best way of hedging against dollar decline: Strategist

"While the medium to longer-term demand backdrop remains compelling given its dominant usage in catalysts of gasoline fueled cars, we still expect a short-term dent," Julius Baer analysts said in a note.

Palladium has a close relationship with vehicle sales, which were strong last year.

"Sales in China were fueled by a tax cut, prompting consumers to pull forward purchases. The tax cut was halved at the beginning of this year and should result in lower sales over the course of the coming months."