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Gold gains but investors cautious as US rate rise looms

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Core Tip:Gold rose 1 per cent on Wednesday, supported by softness in the dollar and European shares, but investors remained cautious ahead of an anticipated Federal Reserve rate rise next week.
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Gold rose 1 per cent on Wednesday, supported by softness in the dollar and European shares, but investors remained cautious ahead of an anticipated Federal Reserve rate rise next week.

The US central bank is widely expected to raise interest rates for the first time in nearly a decade at its next policy meeting on Dec. 15-16.

Higher rates should dent demand for non-interest-paying gold, which has already lost 9 per cent of its value this year and is on track for its third year of losses.

Spot gold rose to a session high of $1,085.20 an ounce and was up 0.6 per cent to $1,080.13 an ounce by 1447 GMT. The metal is around $35 higher than a near-six-year low reached last week.

US gold futures were up 0.4 per cent at $1,080.00 an ounce.

"I don't think the rate hike will be a surprise in itself, but it will depend on the language of the Fed, and we may even see some support if that suggests the rate hiking cycle will be slower than people expect," Natixis analyst Bernard Dahdah said.

"At what speed the Fed will be tightening the rate cycle will be the main driver of gold in 2016."

The dollar slipped for a second day against other major currencies after climbing to a 12-1/2 year high last week.

"We are expecting continued downward pressure for gold next year, depending on whether the market begins to price in more rate hikes or not, as the dollar is going to moderately rise," Citi strategist David Wilson said.

Gold investors were watching a general slide in commodity prices, particularly crude oil, which has fallen to its lowest in nearly seven years on Tuesday.

Weakness in oil could trigger fears of deflation, a bearish factor for gold, often used as a hedge against oil-led inflation.

Gold traders chose to cover short positions on the dollar's weakness. Speculators' net short positions in COMEX gold futures and options were at a record high in the week to Dec. 1, the most recent data showed.

Investors have been boosting bets that gold will soon drop to $1,000 an ounce, ahead of next week's Fed meeting.

Silver rose 1 per cent to $14.29 an ounce, after reaching its lowest point since August 2009 at $13.79 on Monday. Platinum gained 1.5 per cent to $858.55 an ounce and palladium was up 1.1 per cent at $551.73 an ounce.

"The industrially biased precious metals are unlikely to emerge unscathed from the first Fed policy rate hike, and weakness in China has exacerbated the downside," Standard Chartered said in a note.
 

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