Gold edges off eight-week low as Trump dents risk appetite

Gold edged off the previous day's eight-week low on Wednesday as U.S. President Trump's abrupt firing of FBI chief James Comey hit share markets, but expectations of further U.S. interest rate hikes capped gains by the metal.

European stocks retreated from 21-month highs and the dollar initially slipped on concerns that Trump's dismissal of his FBI chief could make it harder for him to push through his tax reform plans.

Spot gold slipped 0.20 percent to $1,218.46 an ounce, while U.S. gold futures for June delivery were up $2.80 to settle at $1,218.90.

The metal slipped sharply in last week as concerns about this month's French elections and North Korea's nuclear program faded, slipping to its lowest since mid-March at $1,213.81 on Tuesday.

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"(This) looks like an attempt at stabilization today after the sharp losses in the preceding days," Commerzbank analyst Carsten Fritsch said. "Trump's firing of FBI Chief Comey adds new uncertainty, (and) stock markets seem to pause."

Trump attributed his decision to sack Comey, who had been leading an investigation into the Trump campaign's possible collusion with Russia during the 2016 election, to the FBI chief's handling of an investigation into presidential nominee Hillary Clinton's emails.

Rival Democrats said Trump had political motives for the move.

In addition to jitters over Comey's ousting, rekindled fears that North Korea could be gearing up for another weapons test fed into risk aversion in the broader markets, taking some pressure off gold.

"The unpredictability of both Trump and North Korea has been a reminder that geo-risk has not disappeared but temporarily gone into hibernation," said Saxo Bank's head of commodity research, Ole Hansen.

"Initially (the Comey sacking) has had only a limited impact but it highlights that there are other drivers out there. It can turn on a plate if one of the two escalates, especially North Korea."

Gains in gold remained muted as expectations for further U.S. monetary policy tightening next month underpinned the dollar and weighed on gold.

The metal is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

Among other precious metals, silver added 0.25 percent to $16.18 an ounce, after sliding to its weakest since Jan. 3 at $16.01 on Tuesday. Platinum gained 1.07 percent at $910.60, while palladium was 0.38 percent higher at $799.22.