Gold steady as US political concerns pressure dollar; stocks drop

By Sethuraman N R

(Reuters) - Gold prices rose on Friday for a second straight session as political uncertainty in the United States following the sacking of FBI chief James Comey pressured the dollar and equities fell.

Spot gold rose 0.2 percent to $1,226.71 per ounce at 0313 GMT. Spot gold rose 0.5 percent in the previous session, its best one-day gain in a month.

It had earlier hit an eight-week low of $1,213.81 an ounce on Tuesday.

U.S. gold futures were also up 0.2 percent at $1,226.60 an ounce.

President Donald Trump on Thursday ran into resistance for calling ousted Federal Bureau of Investigation chief Comey a "showboat." The attack was swiftly rebuffed by top U.S. senators and acting FBI Director Andrew McCabe, who pledged that an investigation into possible Trump campaign ties to Russia would proceed.

"Whatever Trump says is important and is affecting the markets and may influence gold prices for the short-term," OCBC analyst Barnabas Gan said.

"But, from the second half of the year it should depend on the dollar strength and interest rate environment... We are expecting another two hikes in 2017, which should be bearish for gold."

New applications for U.S. jobless benefits unexpectedly fell last week, while producer prices rebounded strongly in April, pointing to a tightening labour market and rising inflation that could spur the Federal Reserve to raise interest rates in June.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.

The dollar index, which measures the greenback against a basket of currencies, was down 0.1 percent at 99.570.

"While we are somewhat encouraged by the steadiness we are seeing in gold of late, we would still like to observe the action from the sidelines for a little while longer in order to make sure that this is not another bull trap," INTL FCStone analyst Edward Meir said.

"We get a host of Chinese macro releases out over the weekend, providing the commodity group with more direction heading into next week as well."

Spot gold may drop to $1,209 per ounce, as its downtrend from the April 17 high of $1,295.42 remains steady, Reuters technical analyst Wang Tao said.

Asian stocks followed an overnight drop on Wall Street, with MSCI's broadest index of Asia-Pacific shares outside Japan falling 0.3 percent.

Among other precious metals, silver rose 0.6 percent to $16.39.

Platinum edged up 0.1 percent to $915.25, while palladium rose 0.3 percent to $803.70.

(Reporting by Nallur Sethuraman in Bengaluru; Editing by Sonali Paul)