June 6, 2018 / 4:35 AM / 15 days ago

PRECIOUS-Gold edges up on weaker dollar, but U.S. rate outlook weighs

    * Geopolitics providing only limited support to gold
-analysts
    * SPDR holdings dip to lowest in nearly 3 months

 (Updates prices)
    By Karen Rodrigues
    BENGALURU, June 6 (Reuters) - Gold prices inched up on
Wednesday on a weaker U.S. dollar and lower treasury yields, but
expectations of a U.S. rate rise next week kept a lid on gains.
    Spot gold        was up 0.3 percent at $1,298.98 per ounce
at 0635 GMT.
    U.S. gold futures         for August delivery were 0.1
percent higher at $1,303.10 per ounce.
    "Geopolitical tensions are providing (only) limited support
to gold prices ... a recovery in the U.S. economy could lead the
central bank to have more rate hikes this year, and hence, the
upward momentum in gold is not that strong, said Mark To, head
of research at Hong Kong's Wing Fung Financial Group.
    "$1,300 should be the level around which the gold price is
going to move at this moment," To said.
    U.S. services sector activity accelerated in May, pointing
to robust economic growth in the second quarter and
strengthening the case for a rise in U.S. interest rates next
week.             
    Gold, which is a non-interest-paying asset, could see demand
take a hit from higher rates.
    However, slightly lower U.S. bond yields and a softer
greenback, provided support to dollar-denominated gold, OCBC
said in a note.
    The dollar index       , which measures the greenback
against a basket of six major currencies, fell 0.2 percent to
93.705.       
    Treasury yields fell on Tuesday as traders piled back into
lower-risk government debt after Italy's new prime minister
vowed to enact economic policies that could balloon the nation's
already-heavy debt load.                   
    Meanwhile, Mexico on Tuesday imposed tariffs on American
products ranging from steel to pork and bourbon in retaliation
against import duties on metals imposed by U.S. President Donald
Trump last week.             
    White House economic adviser Larry Kudlow said on Tuesday
that Trump is considering holding separate talks with Canada and
Mexico, reviving the possibility that the president will seek to
replace the North American Free Trade Agreement (NAFTA).
            
    "Investor interest is mixed towards gold in the current
environment, with geopolitical tensions attracting reduced flows
and limiting the downside risk rather than propelling prices
higher," Standard Chartered said in a note on Tuesday. 
    Holdings of SPDR Gold Trust      , the world's largest
gold-backed exchange-traded fund, fell 0.03 percent to 836.13
tonnes on Tuesday, the lowest since mid-March.          
    In other precious metals, silver        gained 0.6 percent
to $16.55 an ounce.
    Platinum        was up 0.3 percent at $903.50 an ounce and
palladium        was 0.1 percent higher at $994.50 per ounce.

 (Reporting by Karen Rodrigues in Bengaluru; Editing by
Subhranshu Sahu and Joseph Radford)
  
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