Gold edges down as rate hike views dent appeal

By Sethuraman N R

BENGALURU (Reuters) - Gold prices inched lower on Thursday as the dollar firmed amid expectations of higher U.S. interest rates, but the precious metal continued to hold above a key support level of $1,200.

Spot gold was down 0.4 percent at $1,202.02 an ounce at 0646 GMT, while U.S. gold futures were down 0.3 percent at $1,207.80 an ounce.

Spot gold has been trading within an $8 range over the past two sessions, with investors keenly watching the psychological $1,200 level after the metal broke below that mark and hit a 1-1/2-year low of $1,159.96 early this month.

"There is certainly some ambiguity following last week's Jackson Hole symposium where (Federal Reserve Chair Jerome) Powell was a little bit dovish in investors' point of view," ANZ analyst Daniel Hynes said.

"Investors are grappling amid positive data coming through (from the United States) and that's why prices are stuck just above $1,200 at the moment without any sort of clear outlook, especially around the rates for 2019."

Data showing higher-than-expected annualised growth in second-quarter U.S. gross domestic product cemented expectations for a rate hike next month, with a 96 percent probability, according to Fed funds futures.

Higher rates dent the appeal of non-interest-yielding gold, boosting the dollar in which the yellow metal is priced.

The dollar index held steady at 94.662 against a basket of six major currencies, after hitting a four-week low of 94.434 on Tuesday.

The greenback's strength against the yuan was making bullion expensive for buyers in world's biggest consumer China on Thursday, traders said.

Bullion investors' focus would now shift to the trade negotiations between the United States and China and its consequences, Hynes said.

Gold prices are headed for a fifth straight monthly fall, the metal's longest losing streak since early 2013. It has declined about 7.7 percent so far this year amid international trade disputes and the Turkish currency crisis, with investors preferring the dollar as a safe haven.

"While a (relatively) stronger dollar and U.S. economic growth are hurting the bullion's appeal, concerns that Turkey's financial crisis could spread may give the metal a reversal of fate," said Renisha Chainani, head of commodity and currency research at Monarch Networth Capital.

"Gold's short-cover risks are elevated. The setup, with prices near key support (at $1,200) and record-short net positions, is a recipe for a sharp rally."

Spot silver was down 0.3 percent at $14.67.

Platinum was down 0.2 percent at $795 while palladium was fell 0.3 percent to $962.20 after hitting its highest since July 9 at $967 on Wednesday.

(Reporting by Nallur Sethuraman in Bengaluru; Editing by Subhranshu Sahu and Vyas Mohan)