Gold prices firm as dollar slips from 14-year high

By Swati Verma

BENGALURU (Reuters) - Gold rose on Wednesday to reverse earlier losses, with the U.S. dollar edging away from 14-year highs touched the day before.

Spot gold was up 0.4 percent at $1,135.83 an ounce by 0621 GMT. It fell 0.6 percent in the previous session.

U.S. gold futures were also 0.4-percent higher, at $1,138.10 per ounce.

"We are seeing quite a lot of volatility. It is driven by the direction of the U.S. dollar. (Gold) is just marking time before it makes its next big move. It is in a very very strong down channel," said Jeffrey Halley, senior market analyst at OANDA.

"If we see a break of $1,100, a psychological level, we will see more liquidations towards Christmas for sure and it could be an ugly move downwards."

The dollar index, which measures the greenback against a basket of currencies, was down 0.2 percent at 103.140. The index touched 103.65 on Tuesday, its highest since December 2002.

"Any pullback in the greenback may trigger a scramble into gold," HSBC analyst James Steel said in a note.

"Gold may near $1,100 per ounce but we do not think the market will go below that level. If it does break $1,100 per ounce, we would expect bargain-hunters and price sensitive buyers to increase purchases."

The Federal Reserve, which hiked rates last week, signaled three more increases next year.

Higher interest rates next year could boost the U.S. currency, making dollar-denominated commodities such as bullion, more expensive for holders of other currencies.

Rising bond yields and a flight to stock markets have also dampened the appeal of gold.

"The steep dollar continues to pressure commodities including precious metals, especially gold. The precious metal faces further downward pressure as it yields no interest in a world of likely rising interest rates and bond yields," said Mihir Kapadia, CEO of London-based Sun Global Investments Ltd.

"We expect this trend to continue for the next few months."

Signals are mixed for spot gold as it approaches support at $1,121 per ounce again, according to Wang Tao, Reuters analyst for commodities technicals.

"Light trading volume can leave gold and the other precious metals open wide to swings and erratic behaviour on relatively little buying or selling," HSBC's Steel added.

Among other precious metals, silver edged 0.1 percent higher to $16.10 an ounce. The metal hit $15.59 in the previous session, its lowest since April 11.

Platinum gained 0.4 percent to $919.40.

Palladium shed 0.2 percent to $662.50 an ounce. It touched a near 1-1/2-month low of $660.22 earlier in the session.

(Additional reporting by Nallur Sethuraman in Bengaluru; Editing by Joseph Radford and Amrutha Gayathri)