Gold holds near seven-week low as safe-haven demand fades

By Swati Verma

BENGALURU (Reuters) - Gold prices inched up on Tuesday, but remained near seven-week lows hit in the previous session as safe-haven demand ebbed in the wake of France's presidential election.

Spot gold was up 0.2 percent at $1,228.20 per ounce at 0320 GMT, after touching a seven-week low of $1,224.86 the day before, just above its 100-day moving average.

U.S. gold futures advanced 0.1 percent to $1,228.20 an ounce.

"Overall sentiment has been turning from risk aversion to normalized risk tolerance levels, so we can see that demand for gold has been decreasing," said Mark To, head of research at Hong Kong's Wing Fung Financial Group.

Sunday's vote in France saw the market favourite, centrist Emmanuel Macron, elected president.

Investor sentiment in the euro zone hit its highest level in almost a decade in May, improving more than expected, thanks to a strong assessment of the current economic situation and expectations that political uncertainty will diminish.

Elsewhere, Wall Street's volatility index, which measures implied volatility of stock options and is often seen as an investor fear gauge, closed at 9.77 on Monday, its lowest since December 1993.

"The fall of the volatility index further hollows out the safe-haven bid that has underpinned gold for most of 2017. Should volatility remain becalmed, gold may find itself on the losing end of a deeper correction to the downside," said Jeffrey Halley, senior market analyst at OANDA.

The U.S. economy's weak performance at the start of the year should slow Federal Reserve plans for further rate increases, St. Louis Federal Reserve bank president James Bullard said on Monday.

"Even though there may be some slowdown in economic recovery for a very short time, Fed officials still think that this does not impact the rate hike decision," To said.

"Market participants have made their bets and bond yields are moving up and the gold price moving down." [US/]

Gold, which is priced in dollars, could see demand take a hit from higher rates as it pays no interest.

Holdings of SPDR Gold Trust fell 0.14 percent to 851.89 tonnes on Monday. Holdings have fallen over 8 tonnes in the past two weeks. [GOL/ETF]

Spot silver gained 0.1 percent to $16.25 an ounce.

Platinum fell 0.3 percent to $913.75 and palladium was steady at $807.

(Reporting by Swati Verma in Bengaluru; Editing by Richard Pullin and Joseph Radford)