Gold above 5-week low, but stronger dollar, shares cap gains

By Lewa Pardomuan

LONDON (Reuters) - Gold steadied above one-month lows on Wednesday but a firmer dollar, stronger equity markets and signs of a recovery in the U.S. economy are likely to limit gains, while support from physical buying was also lacking.

Spot gold was up 0.3 percent to $1,314.60 an ounce by 1057 GMT, just off $1,305.59, the lowest level since February 14 it hit on Tuesday. U.S. gold futures stood at $1,315.30 an ounce, up $3.90.

Prices touched a six-month high of $1,391.76 last week as mounting geopolitical tensions and fears over slowing economic growth spurred demand for the metal as an insurance against risk.

But comments from U.S. Federal Reserve Chief Janet Yellen suggesting there may be around six months between the bank ending its bond buying and starting to raise interest rates weighed on prices.

European shares rose to two-week highs and the dollar index, which measures the dollar against six major currencies, rose 0.2 percent, supported by data showing on Tuesday that U.S. consumer confidence surged to a six-year high in March.

House prices increased solidly in January, positioning the economy for stronger growth after a weather-induced soft spot.

Perceptions that tensions in Ukraine were easing after U.S. President Barack Obama and his allies agreed to hold off on more damaging economic sanctions unless Moscow goes beyond the seizure of Crimea, left investors uncertain of their next moves, analysts said.

"Improving US data suggests the gold price should continue moving lower, but uncertainty about geopolitical events are tempering bears' conviction," Macquarie analyst Matthew Turner said.

The analyst added that the strength of Chinese demand going into what is seasonally a weaker period could help determine the metal's direction in coming weeks.

ASIA DEMAND SLOW

The drop in gold prices failed to ignite a rush in physical buying, with dealers in Hong Kong complaining about a slowdown in demand from jewellers and retail investors from mainland China.

In a sign of tepid physical demand, premiums for gold bars in Asia were little changed at between 25 cents to $1 an ounce to the spot London prices this week, partly due to concerns that a weak yuan could hurt demand from main consumer China.

"If physical demand isn't coming in below $1,300, then we may try to go lower," said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo. "There's not much incentive to move at the moment. It will be in a range of $1,300 to $1,320."

Russia increased its gold holdings by 7.247 tonnes to 1,041.96 tonnes in February and Turkey also raised its bullion reserves after a sharp fall in the previous month, data from the International Monetary Fund showed.

Among other precious metals, silver rose 0.7 percent to $20.05 an ounce and palladium was up 0.2 percent to $783 an ounce. Platinum gained 0.3 percent to $1,417.25 an ounce.

The chief executive of world's number three platinum producer Lonmin has told staff to take voluntary leave because a wage strike now entering its tenth week at its South African operations by the Association of Mineworkers and Construction Union (AMCU) looks set to continue.

(Additional reporting by Lewa Pardomuan in; Singapore; Editing by Sophie Hares)