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Safe-haven gold inches up on Middle East conflict

Production of gold at Novosibirsk precious metals plant

By Anushree Ashish Mukherjee

(Reuters) - Gold prices inched up on Wednesday as the Middle East conflict boosted safe-haven demand, while minutes of the latest Federal Reserve meeting dampened hopes for an early interest rate cut.

Spot gold was up 0.1% at $2,026.21 per ounce as of 03:05 p.m. ET (2005 GMT). Prices climbed to their highest since Feb. 9 earlier in the session.

U.S. gold futures settled 0.3% lower at $2,034.30.

There is still some tension due to the Israel-Hamas war, which is keeping a floor under the gold market, said Jim Wyckoff, senior analyst at Kitco Metal.

The Iran-aligned Houthis persisted in their attacks on shipping lanes in the Red Sea and Bab al-Mandab Strait, with at least four more vessels hit by drone and missile strikes since Friday.

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Bullion is considered a hedge against economic and geopolitical uncertainties, while higher interest rates reduce the appeal of holding non-yielding gold.

The bulk of policymakers at the U.S. Federal Reserve's last meeting were concerned about the risks of cutting interest rates too soon, with broad uncertainty about how long borrowing costs should remain at their current level, according to minutes of the Jan. 30-31 session.

"The Fed is not going to cut rates or raise rates, so I think there is upside potential in gold," said Daniel Pavilonis, senior market strategist at RJO Futures.

The Fed will likely lower the federal funds rate in June, according to a narrow majority of economists polled by Reuters.

Gold will likely remain in range; the market will now look towards personal consumption expenditure (PCE) next week and then payrolls and Jerome Powell's testimony in Congress in early March, said Tai Wong, a New York-based independent metals analyst.

The dollar index edged lower, turning greenback-priced bullion more appealing to overseas buyers. [USD/]

Spot platinum lost 2% at $882.76 per ounce, palladium fell 2.8% to $947.85 and silver was down 0.3% at $22.92 per ounce.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Shilpi Majumdar and Shailesh kuber)