Gold steady on support from political tensions, but dollar caps gains

By Maytaal Angel

LONDON (Reuters) - Gold steadied on Thursday near the one-week high hit the previous session, supported by the tension between Britain and Russia, while a modest bounce in the dollar capped gains.

The dollar index consolidated gains versus a currency basket before next week's U.S. Federal Reserve meeting, while the yield on U.S. Treasuries and German Bunds rose for the first time in four days.

Spot gold dipped 0.2 percent to $1,322.50 per ounce at 1124 GMT but still close to Wednesday's one-week high, while U.S. gold futures for April delivery were down 0.2 percent at $1,322.60 per ounce.

Moscow said it would retaliate soon for London's move to expel 23 Russian diplomats over a nerve toxin attack on a Russian former double agent in the Britain.

"Gold is finding support from the escalating political crisis between the UK and Russia," Commerzbank said in a note, but added it could face headwinds after the U.S. president's new economic adviser had "spoken out in favour of a strong dollar."

U.S. television commentator and conservative economic analyst Larry Kudlow was appointed Donald Trump's top economic adviser, replacing Gary Cohn who said he would quit after the president decided to impose new metal tariffs.

"I think Kudlow's comments will probably support more of a trade war rhetoric than a stronger dollar," said a Hong Kong based trader, adding "gold needs to close above the $1,330 level to start getting some traction".

Quantitative Commodity Research analyst Peter Fertig said "some political tensions are positive for gold, but others could be negative," adding that any repatriation of investment due to risk aversion could push down equities and push up the dollar.

A stronger dollar makes dollar prices gold costlier for non-U.S. investors.

Market participants worry about a U.S. shift towards increased protectionism. Wall Street fell overnight after Trump sought to impose fresh tariffs on China.

Silver dipped 0.2 percent to $16.48 per ounce and platinum fell 0.5 percent to $954.20 per ounce.

Palladium dipped 0.1 percent higher to $985.75 per ounce after hitting $1,006.30 an ounce in the previous session, its highest since March 1.

(Additional reporting by Nithin Prasad in Bengaluru; Editing by Edmund Blair)