Gold steady as hawkish Fed, robust U.S. data lift dollar

By Sumita Layek

BENGALURU (Reuters) - Gold prices moved in a narrow range on Thursday after upbeat U.S. economic data and hawkish comments from Federal Reserve policymakers raised prospects of the central bank sticking to its tighter monetary policy, boosting the dollar.

About half of the Fed's policymakers, including chairman Jerome Powell, used public appearances on Wednesday to show an increasingly unified view that the U.S. economy was not headed for any obvious potholes.

Further supporting the dollar was data showing strength in the U.S. job market, with service sector activity racing to a 21-year high in September.

Spot gold was up 0.1 percent at $1,198.06 an ounce, as of 0711 GMT, after dropping 0.5 percent in the previous session. Prices hovered in a narrow range between $1,195.36 and $1,199.01 on Thursday.

U.S. gold futures dipped 0.1 percent to $1,201.9 an ounce.

"Gold remains heavy due to strong U.S. economic data, which supports the emerging hawkish Fed narrative, underpinning the dollar sentiment," said Stephen Innes, APAC trading head at OANDA in Singapore.

The Fed raised U.S. rates last week and said it planned four more increases by the end of 2019 and another in 2020, citing steady economic growth and a robust jobs market.

Higher interest rates tend to boost the dollar and push bond yields up, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.

The dollar index climbed 0.3 percent, having marked a six-week peak against its peers on Thursday.

"Higher interest rates and a stronger U.S. dollar are weighing on gold ... Some short positions in the market are supporting the metal," said Ronald Leung, chief dealer, Lee Cheong Gold Dealers, Hong Kong.

Gold prices have fallen for the past six months, losing over 12 percent, largely due to dollar strength, with the U.S. currency benefiting from a vibrant U.S. economy, rising U.S. interest rates and fears of a global trade war.

Investors are watching out for the U.S. non-farm payrolls data due on Friday.

Gold could dip towards the mid $1,180's in the event of a stronger non-farm payroll data, Innes said.

Meanwhile, the Italian government indicated it was open to trimming its budget deficit and debt, easing fears about fiscal policy in the euro zone's third-biggest economy, which dented safe haven buying interest for gold.

Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, dropped 0.84 percent to 23,522,860.09 ounces on Wednesday, the lowest since February 2016.

Among other precious metals, silver climbed 0.2 percent to $14.60 an ounce and palladium was little changed at $1,055.70.

Platinum inched up 0.2 percent to $823.5 per ounce.

(Reporting by Sumita Layek and Vijaykumar Vedala in Bengaluru; Editing by Richard Pullin and Sherry Jacob-Phillips)