Gold picks up after hitting 1-week low but downside risks persist

Global Stock Markets

Spot gold may fall to $1,316/oz - technicals. SPDR Gold holdings down 0.2 pct on Monday. Investors await Fed meeting for rate hike cues.

Gold recovered from a one-week low on Tuesday as the dollar reversed gains and bond yields came off their highs, but short term risks were to the downside as traders awaited a Federal Reserve policy meeting and U.S. jobs data. 

 U.S. Treasury yields - the benchmark for world lending rates - moved above 2.7 percent overnight, their highest in 3-1/2 years, helping the dollar off its lows and initially weighing on gold until the trends were reversed. 

Still, markets are bracing for potentially hawkish language from the Federal Reserve, which will begin its two-day policy meeting on Tuesday, as all signs are that U.S. economic growth is picking up steam. 

 Spot gold was up 0.4 percent at $1,344.76 per ounce at 1120 GMT, after a 0.7 percent drop in the previous session. Earlier in the day, bullion hit its lowest since Jan. 23. 

 U.S. gold futures were 0.3 percent higher at $1,343.90. World equity markets were in their biggest two-day dive in six months, helping safe haven gold, while the dollar index slipped back after climbing overnight amid firmer bond yields. 

Rising bond yields increase the opportunity cost of holding non-yielding bullion, while also strengthening the dollar, thus making dollar-priced gold costlier for investors holding other currencies. 

Investors are awaiting U.S. President Donald Trump's State of the Union speech due later for comments on the dollar. 

 U.S. Treasury Secretary Steven Mnuchin gave dollar bears a major boost last week with a tacit endorsement of a weak dollar, though Trump later tried to row back from those comments. 

Spot gold may break a support at $1,335 per ounce and fall more towards the next support at $1,316, according to Reuters technical analyst Wang Tao. 

 Holdings of SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, fell 0.17 percent to 846.67 tonnes on Monday. 

 Silver rose 0.6 percent to $17.26 an ounce. Platinum slid 0.2 percent to $1,001.40 after dropping to its lowest since Jan. 23, while palladium fell 0.1 percent to $1,084.20, after hitting its lowest since Jan. 11.