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Gold gains as dollar dips, geo-political tensions simmer

Two hundred and fifty gram gold bars sit stacked in a pile
Akos Stiller | Bloomberg | Getty Images
Two hundred and fifty gram gold bars sit stacked in a pile

Gold gained on Tuesday after hitting a five-month peak the previous session, bolstered by a softer dollar, North Korea tensions and nervousness ahead of the French presidential election.

The dollar index fell near a three-week low on disappointing U.S. housing starts data and nerves over trade talks between the United States and Japan, while Britain's pound soared after Prime Minister Theresa May called for a snap general election.

May's call added to a lengthening list of uncertainties for investors already on edge over geopolitical tensions that also include Syria, Afghanistan, Turkey and U.S. relations with Russia and China.

"Short term risk is skewed to downside, the market needs to correct but underlying support is there with the focus on political uncertainties. We see the yen continuing to strengthen," Saxo Bank's head of commodity strategy Ole Hansen said.

"Also expectations about the dollar are up for revision, the strong dollar story is fading. (U.S. president Donald) Trump is talking it down and we're seeing weakness creep into U.S. data,
changing the perception of how much rates have to rise."

A weaker dollar makes dollar-priced gold cheaper for non-U.S. investors.

Spot gold rose 0.43 percent at $1,289.76 per ounce, after climbing to $1,295.42 in the prior session, its highest since Nov. 9.

U.S. gold futures added $2.20 to settle at $1,294.10.

U.S. Vice President Mike Pence reassured Japan of American commitment to reining in North Korea's nuclear and missile ambitions on Tuesday, after warning that U.S. strikes in Syria and Afghanistan showed the strength of its resolve.

In France, investors remain nervous ahead of the first round of France's presidential this Sunday, even though an opinion poll put centrist Emmanuel Macron first in the first round of voting, just ahead of far-right, anti-euro candidate Marine Le Pen.

"Investors appear very reluctant to part with gold. The growth euphoria has faded as tax cuts and infrastructure spending in the U.S. take longer than expected. Also taking into consideration ... the French elections, we believe major selling is unlikely over the coming months," said Julius Baer in a note.

The bank raised its three- and 12-month targets to $ 1,200.

Still, gold was vulnerable to a near term technical correction. Reuters analyst Wang Tao said spot gold may break a support at $1,281 per ounce and fall to the next support at $1,265, following its failure to break a trendline falling from the July 11, 2016 high of $1,374.71.

Spot silver lost 0.41 percent to $18.30 per ounce, after hitting over a five month high of $18.649 in the prior session.

Platinum dropped 0.41 percent to $976 per ounce, while palladium fell 1.93 percent to $773.25, having hit its lowest since March 20 earlier at $775.97.