London: Gold prices rebounded on Wednesday as the dollar resumed its downtrend, but analysts said bullion was vulnerable to weakness ahead of the Lunar New Year and if bulls start shedding their long positions.
Spot gold was up 0.4 per cent to $1,342.80 per ounce by 1000 GMT. In the previous session, it touched its lowest since January 23 at $1,334.10 (Dh4,900.14) an ounce.
US gold futures for February delivery rose 0.5 per cent to $1,342.10 per ounce. Gold got a boost as the dollar fell, putting the currency on track for its biggest monthly drop in nearly two years as US
President Donald Trump’s first State of the Union address failed to offer any comfort to ailing dollar bulls.
A weaker dollar makes commodities priced in the greenback cheaper for buyers using other currencies.
Gold prices were on track for a third consecutive monthly gain and are up 3.1 per cent so far in January, their best month since August, largely due to weakness in the dollar.
Wednesday’s bounce, however, may be only a short-term respite from a downtrend that began after gold touched $1,366.07 an ounce last week.
“Seasonality is starting to fade ahead of the Chinese New Year, so you should not expect too strong physical demand at this point,” said Joni Teves, precious metals analyst at UBS in London.
“You also have long positioning building up quite significantly over the past six weeks, so that should put some pressure on the market.”
Hedge funds and money managers raised their net long position in Comex gold contracts to a four-month high, data showed on Friday.
Investors will also be keeping a keen eye on the US Federal Reserve meeting later on Wednesday that is expected to leave interest rates unchanged while signalling a gradual tightening of monetary policy later this year.
“Yellen may deliver a hawkish surprise, setting the stage for a possible policy pivot... Gold bears may take advantage of this move,” said Stephen Innes, APAC trading head for OANDA.
A rate hike in March would not come as a surprise, but any change in the pace of hikes would pose a risk to gold’s rally, Innes noted.
Traders were also waiting for the US jobs report on Friday that will include data on nonfarm payrolls and average hourly earnings.
In other precious metals, silver climbed 0.5 per cent to $17.22 per ounce, after hitting a one-week low of $17.03 earlier in the session.
Palladium was up 0.4 per cent at $1,058.72 per ounce, having fallen nearly 3 per cent in the previous session to mark a five-week low at $1,047.00.
Platinum gained 0.5 per cent to $1,000.80 per ounce.
It is up 8.4 per cent for the month so far, on track for its best month since January 2017. It hit a one-week low the session before.