Gold supported by U.S. and European political uncertainty

31/01/2017 08:02 AST

Gold rose on Monday as political uncertainty created by U.S. President Donald Trump's move to ban people from seven Muslim-majority countries, and by elections in Europe, supported prices. Traders reported subdued activity because of the Lunar New Year holiday in many Asian countries and some nervousness before the Federal Reserve's two-day meeting on monetary policy starting on Tuesday. Spot gold was up 0.4 percent at $1,196.20 an ounce by 3:18 p.m. EST (2018 GMT). That compared with Friday's 2-1/2-week low of $1,180.65. U.S. gold futures settled up 0.4 percent at $1,193.20 per ounce. "There is an element of geopolitical risk which is supporting the gold market," said James Steel, chief metals analyst for HSBC Securities in New York. Trump's administration tempered a key element of his immigration ban, but the move reinforced growing worries about investing in the United States, analysts said. "Gold's future direction will depend on the dollar, U.S. monetary policy and long-term interest rates," said Commerzbank analyst Carsten Fritsch. "The immigration ban added to risk-off sentiment and boosted gold earlier ... There is also political risk coming up in the form of elections in France and the Netherlands." The Fed, which will meet for a two-day meeting starting on Tuesday, raised interest rates in December. At that time it signaled as many as three rises in 2017 as the Trump administration takes over with promises to boost growth through tax cuts, spending and deregulation. Higher rates could mean a higher U.S. currency, which makes dollar-denominated gold more expensive for holders of other currencies, potentially dampening demand. "We maintain a cautious view on gold, taking into consideration the expectation of an improving growth outlook, rising interest rates and a strengthening dollar," Julius Baer analysts said in a note. "That said, we acknowledge the upside risks related to recent actions taken by President Trump, such as the immigration ban. Should he become the feared 'unguided missile', uncertainties would increase, fostering safe-haven demand and pushing gold prices significantly higher." Technically, gold is struggling to stay above the 21-day moving average around $1,191 an ounce. A sustained break above is expected to meet resistance at $1,200 and $1,220, near the January highs. Support is at $1,176, the 55-day moving average. Among other precious metals, spot silver gained 0.08 percent at $17.13 per ounce. Platinum rose 0.2 percent at $986 and palladium gained 0.1 percent at $737.

Reuters