Gold steadies after sell-off linked to hawkish Fed, strong dollar

Key Points
  • Spot gold may fall to $1,303/oz — technicals
  • Dollar index rises to highest since February 9
  • Fed's Powell strikes hawkish rate tone in first testimony
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Gold prices steadied on Wednesday after falling more than 1 percent in the previous session after new Federal Reserve Chairman Jerome Powell's comments suggested the possibility of four U.S. interest rate increases this year rather than three.

Spot gold was waffling around $1,317.70 an ounce by 2:45 p.m. EST. It closed 1.1 percent lower on Tuesday after hitting the lowest since Feb. 9 at $1,313.26.

U.S. gold futures for April delivery were up 0.03 percent at $1,319.

The dollar hit a five-week high versus a currency index, with investors still bullish after Powell noted rising U.S. inflation and vowed to prevent overheating in the economy.

A strong dollar makes dollar-priced gold costlier for investors using other currencies.

"Even though the dollar is stronger and Treasury yields are higher, the gold market oversold itself yesterday, and now we're recovering a bit," said Walter Pehowich, executive vice president of investment services at Dillon Gage Metals.

The dollar has strengthened from three-year lows hit on Feb. 16, helped by U.S. Treasury yields approaching recent four-year highs, and as investors view the currency as oversold.

World stocks tumbled another quarter percent as dismal Chinese and Japanese manufacturing and industrial output data added to the bearish equities sentiment sparked by Powell's testimony.

"Longer-term we see upside potential for gold coming from increased U.S. inflation and any renewed volatility in equity markets," said Evan Metcalf, director of portfolio management and head of operations at ETF Securities.

Powell noted in his speech that recent data had strengthened his confidence in inflation.

Inflation is seen as gold-positive, with bullion viewed as a safe store of value when price pressures rise. However, lifting interest rates to fight inflation makes the non-yielding metal less attractive.

Spot gold is expected to break support at $1,317 per ounce and fall to the next support level at $1,303, as suggested by its wave pattern and a projection analysis, Reuters technical analyst Wang Tao said.

"People are looking to buy gold on dips, so I think it will be supported down at $1,300," a Hong Kong-based trader said.

Silver fell 0.12 percent at $16.40 an ounce. Palladium was up 0.51 percent at $1,040.74, while platinum flattened out at $983.10 per ounce, after dropping to a two-week low of $973.50.