Gold eases as firm dollar prompts investors to cash in gains

By Zandi Shabalala

LONDON (Reuters) - Gold edged lower on Thursday as a recovery in the dollar prompted some buyers to cash in recent gains, though uncertainty over the outlook for U.S. monetary policy continued to underpin the metal.

Palladium also edged lower, after surging more than 4 percent in the previous session in a rally triggered by a wave of short-covering after recent hefty gains. The metal has run into some resistance around last month's high of $722 an ounce.

Spot gold was down 0.1 percent at $1,345.06 an ounce at 1230 GMT, after rising around 0.8 percent over the last two days. U.S. gold futures for December delivery were down 60 cents at $1,351.30 an ounce.

"There's potentially profit taking at play in gold and from even stronger gains elsewhere such as palladium, particularly after it ran so hard yesterday," ETF Securities' commodity strategist Martin Arnold said.

"There was no fundamental reason for platinum and palladium to be up that much, as there was a little liquidity. A little bit of a pullback is in order after some over exuberance."

Palladium hit a more than 17-month high on Wednesday at $746.10 an ounce, and was down 0.7 percent on Thursday at $719.15 an ounce.

The dollar index rebounded against a basket of major currencies after touching a near one-week low Wednesday. Currency markets remain focused on whether the Federal Reserve will press ahead with interest rate hikes this year, after raising rates for the first time in nearly a decade in December.

Investors expect the Fed, supported by positive economic data, to lift rates again in December, but other countries are increasingly looking to raise stimulus. The Reserve Bank of New Zealand cut rates on Thursday.

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

"It is difficult to get a clear handle on the short-term direction of gold, as the complex seems to be teeing off on dollar weakness and what seems to us to be general complacency about the central banks being reluctant to take hawkish action on the rate front," INTL FCStone analyst Edward Meir said in a note.

World shares hovered close to one-year highs on Thursday as oil prices dropped for a third straight day and the New Zealand interest rate cut got a lukewarm reaction from investors.

Silver was up 0.4 percent at $20.135 an ounce, while platinum was 0.5 percent lower at $1,166.40 an ounce.

(Additional reporting by Nallur Sethuraman and Koustav Samanta in Bengaluru, editing by David Evans)