Gold gains as equities rally wanes, nervous shorts cover

By Sumita Layek

BENGALURU (Reuters) - Gold rose on Wednesday as a rally in global equities ran out of steam, denting the appeal of riskier assets, while bullion investors used recent price dips to cover short positions.

Spot gold was up 0.4 percent at $1,229.08 an ounce at 0223 GMT, not far from the two-and-a-half-month peak of $1,233.26 hit on Monday as a rout in stock markets forced investors to seek safety in the metal.

U.S. gold futures rose 0.3 percent to $1,232.

"Gold is being supported by any signs of stock market weakness and also nervous shorts, who are trying to pull out," said Saxo Bank analyst Ole Hansen.

"The market was surprised by the extended short positions and the spike indicated a lot of traders were wrong-footed. It also indicates that the dips are being used to cover the short positions."

A recovery by global stocks proved short-lived as warnings over a slowing European auto sector soured an upbeat mood, while Wall Street was set for a slightly lower open after its best session in eight months the previous day.

"Gold is moving technically and is giving a very good signal after it rebounded from $1,220 levels," said ActivTrades chief analyst Carlo Alberto De Casa.

"We are now approaching another key resistance area around $1,230."

Bullion was also testing resistance at the 100-day moving average of about $1,226. A convincing break above that is seen as a bullish sign for investors who follow technical signals.

Investors have now turned their attention to the release of minutes from the U.S. Federal Reserve's September policy meeting at 1800 GMT for fresh clues on the pace of monetary tightening.

The Fed raised interest rates last month for the third time this year and said it planned four more increases by the end of 2019 and another in 2020.

"Moving forward, with growing concerns about the global economy on the back of trade tensions, there is potential for a bit of an upside in gold," said ING analyst Warren Patterson.

Holdings of SPDR Gold Trust, the largest gold-backed exchange-traded fund, have risen about 2.5 percent in the past eight days, which analysts said shows a shift in perception in sentiment among gold ETF investors.

Meanwhile, some central banks have taken their holdings of gold to record levels in recent months in an effort to maintain the value of their currencies against a rising U.S. dollar.

In other metals, silver was up 0.5 percent at $14.72 an ounce, platinum rose 0.1 percent to $838.20 and palladium was flat at $1,079.

(Reporting by Sumita Layek and Nallur Sethuraman in Bengaluru; Editing by Elaine Hardcastle and David Goodman)