Gold eases in French election afterglow; safe-haven demand supports

By Swati Verma

(Reuters) - Gold prices eased slightly on Tuesday, dropping for a second day, as investor sentiment remains skewed toward riskier assets in the wake of the French election results on Sunday, though geopolitical concerns are still supporting safe-haven demand.

Spot gold was down 0.1 percent at $1,273.50 per ounce by 0338 GMT.

U.S. gold futures were down 0.2 percent at $1,275.60.

Bullion prices fell about 0.7 percent in the previous session after touching $1,265.90 an ounce, the lowest since April 11, following the first round of France's presidential election that indicated less support for far-right candidate Marine Le Pen.

Still, analysts said safe-haven demand for gold remained strong amid the tensions over North Korea's nuclear and missile programme as well as a potential government shutdown in the United States this week.

"A weaker dollar, Korean tensions and the uncertainty with regard to the U.S. debt ceiling negotiations all have the potential to boost gold higher over the short-term," INTL FCStone analyst Edward Meir said.

U.S. President Donald Trump said on Monday the U.N. Security Council must be prepared to impose new sanctions on North Korea as concerns mount that it may test a sixth nuclear bomb as early as Tuesday.

Trump indicated an openness on Monday to delaying his push to secure funds for his promised border wall with Mexico, potentially eliminating a sticking point as lawmakers worked to avoid a looming shutdown of the federal government.

"Although the government has excess cash on its book to keep going past that date and may even stay solvent for several more months, this kind of backdrop is not a constructive state of affairs and could indirectly help gold if it causes some consternation in the equity markets," Meir said.

Holdings of SPDR Gold, the world's largest gold-backed exchange-traded fund, rose 0.17 percent to 860.17 tonnes on Monday. Holdings have risen 6 tonnes in the past two sessions, indicating investor's interest in the safe-haven asset.

Bullion is often seen as an alternative investment during times of political and financial uncertainty.

On the technical front, gold, however, does not have a rosy picture with the potential of a decent downside correction if and when uncertainty fades, said Jeffrey Halley, senior market analyst at OANDA.

"Gold has resistance at $1,290 and then $1,296, having failed in this area numerous times last week. Below, support lies at $1,265.50 and then the 200-day average at $1,254.80. A daily close below $1,240 would signal a much larger correction could be on the way."

Goldman Sachs, in a note on Monday, said it continues to expect gold to come under pressure in the near term on a potential rally in real interest rates following the expected unveiling of President Trump's tax policies on Wednesday or later.

Silver was up 0.1 percent at $17.92 an ounce, after touching a one-month low of $17.65 on Monday.

Platinum was steady at $959.30 an ounce, after falling over 1 percent in the prior session.

Palladium was unchanged at $794.90 an ounce.

(Reporting by Swati Verma and Nallur Sethuraman in Bengaluru; Editing by Richard Pullin and Christian Schmollinger)