Gold price steadies after sharp falls linked to hawkish Fed, strong dollar

New York (Feb 28)  Gold prices steadied on Wednesday after falling more than 1 percent in the previous session after new Federal Reserve Chairman Jerome Powell's comments suggested the possibility of four U.S. interest rate increases this year rather than three.

The dollar hit a three-week high versus a currency index, with investors still bullish after Powell noted rising U.S. inflation and vowed to prevent overheating in the economy. A strong dollar makes dollar-priced gold costlier for investors using other currencies.

Spot gold had edged up 0.2 percent to $1,320.36 an ounce by 1241 GMT. It closed 1.1 percent lower on Tuesday after hitting the lowest since Feb. 9 at $1,313.26. U.S. gold futures were up 0.2 percent at $1,321.50.

"In the short term we're bearish gold. Our forecast is for an average of $1,300 for the first quarter. The worst scenario for gold is a rising dollar and rising yield," Macquarie analyst Matthew Turner said.
    The dollar has strengthened from three-year lows hit on Feb.
16, with investors viewing the currency as oversold and as U.S.
Treasury yields again approach recent four-year highs.
    World stocks tumbled another quarter percent as dismal
Chinese and Japanese manufacturing and industrial output data
added to the bearish equities sentiment sparked by Powell's
testimony.
    "Longer-term we see upside potential for gold coming from
increased U.S. inflation and any renewed volatility in equity
markets," said Evan Metcalf, director of portfolio management
and head of operations at ETF Securities.
    Powell noted in his speech that recent data had strengthened
his confidence in inflation.              
    Inflation is seen as gold-positive, with bullion viewed as a
safe store of value when price pressures rise. However, lifting
interest rates to fight inflation makes the non-yielding metal
less attractive.
    Spot gold is expected to break support at $1,317 per ounce
and fall to the next support level at $1,303, as suggested by
its wave pattern and a projection analysis, Reuters technical
analyst Wang Tao said.        
    "People are looking to buy gold on dips, so I think it will
be supported down at $1,300," a Hong Kong-based trader said.
    Silver was flat at $16.43 an ounce.
    Palladium was up 0.8 percent at $1,043, while
platinum fell 0.5 percent to $978.50 per ounce, after
dropping to a two-week low of $973.50.

Reuters