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NEW YORK/LONDON (Reuters) - Gold rallied to the highest level in nearly three weeks on Tuesday after a strong debate performance from French centrist presidential candidate Emmanuel Macron and as fading expectations for near-term U.S. interest rate hikes pushed the dollar lower.
The U.S. dollar index fell to a six-week low while 10-year Treasury yields and U.S. and European shares also dropped, helping to bolster gold.
Spot gold was up 0.9 percent at $1,244.48 an ounce by 2:50 p.m. EDT (1850 GMT), just off the session high of $1,247.60, its highest level since March 2. U.S. gold futures for April delivery settled up 1 percent at $1,246.50.
"We're back down below 100 on the dollar index, and that is tied in with the less aggressive rate hike expectations that we heard last week from the Fed," Mitsubishi analyst Jonathan Butler said.
The Fed's policy statement last Wednesday was less hawkish than expected, dampening speculation that the U.S. central bank would raise interest rates quickly this year.
Gold is highly sensitive to rising U.S. rates, because they increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced. Gold fell in the run-up to the Fed's rate hike last week, with hedge funds and money managers sharply cut their net long position in COMEX gold futures.
"The funds totally missed the boat ... which means they could run right back in here," said Bill O'Neill, co-founder of LOGIC Advisors. "There are a number of things going on politically that are going to keep the market nervous."
The euro rallied after Macron cemented his position as the front-runner in the French presidential race in the first televised debate on Monday versus anti-European Union contender Marine Le Pen.Gold prices were also underpinned by uncertainty over President Donald Trump's policy direction.
"The previous two hikes marked cycle lows for gold, and European election uncertainty, U.S. President Trump's foreign policies, as well as seasonal demand in India materializing in April are likely to make Q2 the strongest quarter for gold prices this year," Standard Chartered said in a note.
Holdings of the largest gold-backed exchange traded fund, New York-listed SPDR Gold Shares, declined for a third straight day on Monday.
Meanwhile, data from the Swiss customs bureau showed Hong Kong's net gold exports to Switzerland hit their highest level in February since records began five years ago.
Silver was up 0.7 percent at $17.53 an ounce, while platinum was 0.1 percent lower at $966.24.
Palladium was up 0.6 percent at $784, after rising to its highest level in more than a month at $792.90 an ounce.
Additional reporting by Nallur Sethuraman in Bengaluru; Editing by Leslie Adler