Gold gains but investors cautious on looming U.S. rate rise

By Clara Denina

LONDON (Reuters) - Gold steadied on Wednesday, supported by softness in the dollar and European shares, but investors remained cautious ahead of an anticipated Federal Reserve rate rise next week.

The U.S. central bank is widely expected to raise interest rates for the first time in nearly a decade at its next policy meeting on Dec. 15-16.

Higher rates should dent demand for non-interest-paying gold, which has already lost 9 percent of its value this year and is on track for its third year of losses.

Spot gold rose 0.3 percent to $1,077.91 an ounce by 1107 GMT. The metal is about $30 higher than a near-six-year low reached last week.

"There is not going to be any surprise at the next Fed policy meeting ... everybody is expecting a rate hike," Citi strategist David Wilson said.

"We are expecting continued downward pressure for gold next year depending on whether the market begins to price in more rate hikes or not, as the dollar is going to moderately rise."

The dollar slipped for a second day against other major currencies on Wednesday, after climbing to a 12-1/2 year high last week.

The slide in commodity prices, particularly crude oil, is also capping gold's upside. Crude has fallen to its lowest in nearly seven years as OPEC continues to pump near-record amounts of oil to defend market share.

Weakness in oil could trigger fears of deflation, a bearish factor for gold, often used as a hedge against oil-led inflation.

Gold traders chose to cover short positions on the dollar's weakness. Speculators' net short positions in COMEX gold futures and options were at a record high in the week to Dec. 1, the most recent data showed.

Investors have been boosting bets that gold will soon drop to $1,000 an ounce, options data showed, ahead of next week's Fed meeting.

Silver rose 1.1 percent to $14.31 an ounce, after reaching its lowest point since August 2009 at $13.79 on Monday. Platinum gained 0.5 percent to $850.55 an ounce and palladium lost 0.1 percent to $546.25 an ounce.

"The industrially biased precious metals are unlikely to emerge unscathed from the first Fed policy rate hike, and weakness in China has exacerbated the downside," Standard Chartered said in a note.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by David Evans)