Gold gains as dovish Federal Reserve, US political impasse drag dollar

Gold prices rose on Thursday as growing expectations that the US Federal Reserve will pause its rate tightening cycle this year and an impasse between US President Donald Trump and Democrats on funding for a border wall weighed on the dollar.

Spot gold was up 0.2 per cent at $1,295.84 per ounce as of 0556 GMT, hovering near Friday's peak of $1,298.42 - a level last seen in mid-June.

US gold futures gained 0.4 per cent to $1,297.20 per ounce.

Minutes from the Fed's Dec. 18-19 policy meeting showed that several policymakers said they could be patient about future interest rate hikes.

"Gold is getting a bit of support out of a dovish Fed and institutional instability in the U.S," said Kyle Rodda, a market analyst at IG, Australia.

"We have got the markets pricing in the possibility of a Fed rate cut rather than a hike in the year ahead," Rodda said, adding that the Fed minutes gave the dollar a bit of a "kick down."

The dollar index, which tracks the greenback against major currencies, fell to its lowest level in nearly three months.

Gold is highly sensitive to declining interest rates which decrease the opportunity cost of holding the non-yielding bullion while pressuring the U.S. currency.

Meanwhile, Trump walked out of talks with Democratic congressional leaders on Wednesday over funding for a border wall with Mexico and reopening the government, saying the meeting in the White House was "a total waste of time".
 

Gold is expected to retest a resistance at $1,299 per ounce, with a good chance of breaking above that and rising further to $1,311, according to Reuters technical analyst Wang Tao.

Asian equities took a breather after an extended rally, as markets awaited more news on U.S.-China trade talks after both the countries wrapped a three-day meeting.

"With the government shutdown still far from resolved and Chinese trade talks just partly concluded, we are not sure that the turbulence in the equity markets is over just yet," INTL FCStone analyst Edward Meir said in a note, adding "the length in gold should be maintained."

Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.3 percent on Wednesday to their highest since late July.

Among other precious metals, palladium fell about 0.6 percent to $1,318.75 per ounce, after scaling an all-time high of $1,342.43 in the previous session.

Silver gained 0.1 percent to $15.76 per ounce, while platinum inched down 0.3 percent to $822.00.