Gold softens as investors wait for U.S. elections outcome

By Swati Verma

BENGALURU (Reuters) - Gold was slightly softer on Tuesday as Americans began casting their votes in U.S. midterm elections and investors braced for any market fallout from the result, which could fuel interest in the metal as a hedge against risk.

Spot gold was down 0.1 percent at $1,229.21 per ounce as of 10:46 a.m. EST (1546 GMT), while U.S. gold futures edged down 0.1 percent to $1,230.80.

"Gold is not performing too badly. Some of this has to do with the movement of the dollar index. There has been a slight drop in the U.S. dollar," said Bart Melek, head of commodity strategies at TD Securities.

"We continue to have a bit of volatility in the equity markets. We suspect we are going to see a bit more movement into gold as a hedge against volatility."

The dollar dipped, but its moves were limited by investor caution about the elections. [USD/]

The elections mark the first major test of U.S. President Donald Trump's sweeping tax cuts and hostile trade policies. Polls point to his Republican party losing control of the House of Representatives which could curb some of his policymaking power.

"These elections could be important for gold if they slow the strength of the U.S. dollar, which has been a major headwind to gold this year, or stoke uncertainty among U.S. retail investors in gold should Trump lose support," Standard Chartered analysts said in a note.

"We maintain a positive view towards gold, and believe prices are likely to extend their gains towards $1,300 per ounce, especially if the U.S. dollar weakens after the U.S. midterm elections."

Gold is still down more than 5 percent this year, with investors turning to the dollar as a haven from risk as a U.S. trade war with China unfolded, and as higher U.S. interest rates offered more attractive returns than the non-yielding metal.

Traders also waited for a two-day Federal Reserve meeting starting on Wednesday to gauge the outlook for U.S. monetary policy, analysts said.

While the Fed is expected to keep interest rates steady, markets will look for insight into the Federal Reserve's view on future interest rate increases. Higher interest rates discourage the buying of non-interest-paying bullion, which is priced in dollars.

Indicating investor sentiment toward gold, holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 0.23 percent to 757.29 tonnes on Monday.

Silver fell 0.5 percent to $14.56 per ounce while palladium declined 2.5 percent to $1,104.22.

Platinum gained 0.8 percent to $870.50 per ounce, having touched its highest since June 25 at $875.70 earlier in the session.

"Platinum is being driven by the gold market. I suspect that the market is expecting some tighter supply and demand fundamentals as we move into 2019," Melek said.

(Reporting by Swati Verma in Bengaluru; Editing by Susan Thomas)