Gold prices flat as outlook for faster U.S. interest hikes weigh

By Eileen Soreng

(Reuters) - Gold prices were little changed on Wednesday after a more than 1 percent drop in the previous session as investors interpreted comments from Federal Reserve Chairman Jerome Powell to mean that the United States may raise interest rates more frequently than anticipated this year.

Spot gold was almost unchanged at $1,317.90 an ounce at 0758 GMT. It closed 1.1 percent lower on Tuesday after hitting the lowest since Feb. 9 at $1,313.26.

U.S. gold futures were up 0.1 percent at $1,319.3 per ounce.

"We might be entering a short-term period in the gold market where we could see more dollar strength, higher bond rates and a return to equity weakness, a familiar backdrop that could pressure gold lower," INTL FCStone analyst Edward Meir said in a note.

The dollar index, which measures the greenback against a basket of six major currencies, rose on Tuesday to its highest since Feb. 9 after Powell gave testimony to the U.S. Congress that indicated the possibility of four interest rate hikes this year rather than the three that market participants are expecting.

The dollar index was up 0.1 percent at 90.403 on Wednesday.

"Longer-term we see upside potential for gold coming from increased U.S. inflation and any renewed volatility in equity markets," said Evan Metcalf, director of portfolio management and head of operations at ETF Securities.

Powell noted in his speech that recent data had strengthened his confidence in inflation.

Inflation is seen as gold-positive, because bullion is seen as a safe store of value when price pressures rise, however lifting interest rates to fight inflation makes the non-yielding metal less attractive.

Spot gold is expected to break a support at $1,317 per ounce and fall more to the next support at $1,303, as suggested by its wave pattern and a projection analysis, according to Reuters technical analyst Wang Tao.

"People are looking to buy gold on dips, so I think it will be supported down at $1,300," said a Hong Kong-based trader.

Meanwhile, Asian shares extended losses on Wednesday Chinese and Japanese manufacturing data revived worries about global economic growth, adding to the negative market sentiment triggered by Powell's speech.

Among other precious metals, silver fell 0.2 percent to $16.40 an ounce.

Palladium was up 1.1 percent at $1,047.20 per ounce, while platinum fell 0.3 percent to $980.30 per ounce, after dropping to a two-week low of $974.

(Additional reporting by Nithin Prasad in Bengaluru; Editing by Christian Schmollinger and Subhranshu Sahu)