Gold slips as strong dollar, rebounding stocks dent appeal

By Sethuraman N R

BENGALURU (Reuters) - Gold fell on Wednesday as rebounding stock markets dimmed the metal's appeal and the bearish outlook was bolstered by dollar strength and a bullish U.S. interest rate outlook.

Spot gold shed 0.3 percent to stand at $1,185.66 per ounce by 1157 GMT, moving largely within a narrow $5 range during most of the session.

The metal attracted some interest as world stocks hit eight-week lows in the previous session, but the bullion pulled back as shares staged a mild rebound on Wednesday.

"Gold has been pretty resilient to rising bond yields for the past couple of weeks. But, looks like it is starting to come under pressure from rising yields as well as a strong dollar," ETF Securities analyst Nitesh Shah said.

Rising U.S. government bond yields can weigh on gold, as they make Treasuries attractive to investors seeking assets that earn a return as opposed to non-yielding bullion, which costs money to store and insure.

Gold has fallen over 13 percent since hitting a peak in April, with investors opting for the greenback, as the U.S.-China trade war unfolded and due to rising U.S. interest rates.

"Gold prices will struggle to rebound over the remainder of 2018," said Sabrin Chowdhury, commodities analyst at Fitch Solutions.

"Strong U.S. economic growth, concurrent monetary policy normalisation by the Federal Reserve and a strong dollar will all limit the attractiveness of holding gold as an investment."

The U.S. Federal Reserve increased interest rates last month for the third time this year and is widely expected to hike again in December, with no suggestion its tightening policy will end any time soon.

Gold has held in a $34 range for the last 1-1/2 months, with support at lower levels from concerns over economic growth in emerging markets and inflationary pressure from soaring oil prices.

"Support for gold comes in at $1,180-$1,183 area," said Fawad Razaqzada, an analyst with Forex.com, adding that if this level is broken, the metal could fall further to below the next support level at $1,160.

Gold prices hit a 1-1/2-year low at $1,159.96 during mid August.

"Major resistance for gold remains at $1,205-$1,215 levels and it does need to break through that area for one to get bullish on the technical front," Razaqzada said.

Spot silver fell 0.5 percent to $14.30, palladium was up 0.6 percent at $1,076 and platinum fell 0.3 percent to $821.70 an ounce.

(Reporting by Nallur Sethuraman in Bengaluru; editing by David Evans)