Gold price steadies after rally on weak U.S. data

By Zandi Shabalala

LONDON (Reuters) - Gold steadied near two-and-a-half-week highs on Wednesday, losing momentum due to profit taking following a rally in the previous session on U.S. data that weakened the case for a U.S. rate rise soon.

U.S. services sector activity slowed to a 6-1/2-year low in August amid sharp drops in production and orders, pointing to slowing economic growth that further diminished prospects for a near-term interest rate increase.

The U.S. non-manufacturing new orders index for August fell to its lowest since December 2013.

Gold is highly exposed to interest rates and returns on other assets, as rising rates lift the opportunity cost of holding non-yielding bullion.

Spot gold was down 0.2 percent at $1,346.12 per ounce by 1201 GMT. The metal touched a high of $1,352.65, its best since Aug. 19 and is up about 1.7 percent so far this week.

U.S. gold futures slipped 0.24 percent to $1,351 per ounce.

"Today's movement is likely a little bit of profit taking and maybe a little bit of settling but the big story is the previous sessions jump because people assumed that the U.S. Fed would not hike rates as quickly as expected," said Hamza Khan, head of commodities strategy at ING.

He said the $1,300 to $1,350 gold trading range has established a floor, with more room for the price to rise due to support from turmoil in the U.S. elections and the delayed impact of Brexit.

A string of disappointing U.S. data since Friday "has thrown a real spanner in the works regarding the next Fed rate hike", MKS PAMP Group said in a note.

"We see more potential upside from here with September now looking highly unlikely for rates to move higher."

The dollar index, which measures the greenback against a basket of major currencies was flat while world stocks, which flourish in low interest rate environments, jumped to the highest level in year. [MKTS/GLOB]

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 1.52 percent, its biggest one-day gain since July 5, to 952.14 tonnes on Tuesday from 937.89 tonnes on Friday. [GOL/ETF]

Silver was down 0.6 percent to $19.87 per ounce after touching a more than three-week high of $20.13.

Platinum rose 0.25 percent to $1,093 per ounce. It hit a 2-week high of $1,105.80. Palladium was up 0.1 percent to $696 after touching an over two-week high of $708.40.

(Additional reporting by Nallur Sethuraman in Bengaluru; editing by David Clarke)