Gold price holds near five-month low before Fed rate decision

New York (Dec 13)  Gold prices on Wednesday held near their lowest in nearly five months as investors looked ahead to an expected U.S. interest rate increase and clues from the U.S. Federal Reserve on its plans for further rises next year.

The Fed's policy statement and latest economic projections are due at 1900 GMT and Chair Janet Yellen will give a news conference half an hour later, her last before her four-year term ends early next year.

The Fed has increased rates twice this year and is expected to raise them three more times in 2018.

Gold is sensitive to rising rates because they push up bond yields, reducing the appeal of non-yielding gold. They also tend to boost the dollar, making gold more expensive for holders of other currencies.
    Spot gold was down 0.2 percent at $1,241.53 an ounce
at 1132 GMT. On Tuesday, it touched $1,235.92, the lowest since
July 20.
    U.S. gold futures were up 0.1 percent at $1,243.40
an ounce.
    Gold prices have tended to fall before recent U.S. rate
hikes but recover shortly afterwards, said Saxo Bank analyst Ole
Hansen.
    Yellen's successor, Fed Governor Jerome Powell, has hinted
that he has a cautious approach to rate increases, saying he has
"no sense of an overheating economy."            
    Much will depend on the projections, said Think Markets
analyst Naeem Aslam.
    "If the Fed comes out of the gate with more hawkish views on
the economy and sees inflation improving, it could impact the
dollar index. Any further strength in the dollar index would
push the gold price lower," Aslam said.
    The dollar weakened on Wednesday after a Democrat won a U.S.
Senate seat in Alabama, reducing the Republican majority and
likely making it harder for them to enact tax cuts that would
stimulate the economy.                          
    On the technical side, fibonacci support for gold was at
around $1,240 and a close below that level could trigger further
falls, said Saxo Bank's Hansen.
    Analysts at ScotiaMocatta said momentum indicators showed
gold could fall toward its July low of $1,204.90.
    Demand for gold as insurance against geopolitical risk could
also fall after U.S. Secretary of State Rex Tillerson offered to
begin direct talks with North Korea without pre-conditions, INTL
FCStone analyst Edward Meir said.
    In other precious metals, silver was down 0.4 percent
at $15.66 an ounce, near Tuesday's five-month low of $15.61.
    Platinum was flat at $876.40 an ounce, after touching
its lowest since February 2016 at $868.80 on Tuesday.
    Palladium was down 0.3 percent at $1,009.40 an ounce.