Gold rises as global stocks falter, nervous shorts cover

By Sethuraman N R

BENGALURU (Reuters) - Gold rose on Wednesday, carried along by a retreat in global stock markets and technical momentum, despite the normally bearish influence of a stronger dollar.

Spot gold was up 0.3 percent at $1,227.12 per ounce at 11:29 a.m. EDT (1529 GMT), just below the 2-1/2 month peak of $1,233.26 scaled on Monday as a rout in stock markets forced investors to seek safety in the metal.

U.S. gold futures were up 0.1 percent at $1,232.10 per ounce.

"Gold is rising as the stock market is giving back gains and you have enough to worry about in the world to keep the metal from selling off," said George Gero, managing director at RBC Wealth Management.

"But the rallies are being capped by expectations of the Federal Reserve's rate hike expectations," Gero added.

A global stock market rally proved short-lived as warnings over a slowing European auto sector soured the upbeat mood. Wall Street fell on disappointing results from IBM, after enjoying its best session in eight months the previous day.

Investors have now turned their attention to the release of minutes from the U.S. central bank's September policy meeting at 2 p.m. EDT (1800 GMT) for fresh clues on the pace of monetary tightening.

The Fed raised interest rates last month for the third time this year and said it planned four more increases by the end of 2019 and another in 2020.

Gold was also getting a leg from nervous shorts, who are trying to pull out, Saxo Bank analyst Ole Hansen said.

"The market was surprised by the extended short positions and the spike indicated a lot of traders were wrong-footed. It also indicates that the dips are being used to cover the short positions."

Gold was testing resistance at the 100-day moving average of about $1,226, and a convincing break above that is seen as a bullish sign for investors who follow technical signals.

Meanwhile, some central banks have taken their holdings of gold to record levels in recent months in an effort to maintain the value of their currencies against a rising U.S. dollar.

Holdings of SPDR Gold Trust, the largest gold-backed exchange traded fund, have risen about 2.5 percent in the past eight days, which analysts said shows a shift in perception in sentiment among gold ETF investors.

In other metals, silver was up 0.2 percent at $14.67 per ounce, platinum fell 0.1 percent to $836.50 and palladium was down 0.7 percent at $1,071.74.

(Reporting Nallur Sethuraman and Sumita Layek in Bengaluru; Editing by Will Dunham)