Gold steady as market seeks signals on U.S. rates, taxes

By Eric Onstad

LONDON (Reuters) - Nervous investors looked for new signals on whether U.S. interest rates would rise in March and on U.S. President Donald Trump's tax plans as gold held steady on Wednesday.

"We see the risks as pretty binary in the gold market," Carsten Menke, commodities research analyst at Julius Baer in Switzerland, said.

"We still think the FOMC will go for a rate hike in March, which is not yet priced in, so we could see quite a bit of a setback towards $1,200 or below."

Traders are waiting for the minutes from the U.S. Federal Reserve's last meeting, due at 1900 GMT on Wednesday.

"On the other hand, if Trump comes along with more tweets or executive orders, than we might well see more (investment) inflows," Menke said, suggesting the purchase of out-of-the-money call options.

Spot gold had edged up 0.1 percent to $1,236.77 per ounce by 1500 GMT, while U.S. gold futures dipped 0.1 percent to $1,238. Spot gold dropped as much as 1 percent to touch a one-week low of $1,225.73 in the previous session.

"Uncertainty is running higher than it’s ever been, and that’s probably what’s driving gold...along with inflation," said Ross Norman, CEO of Sharps Pixley.

"The key thing is that geopolitics and inflation have nudged themselves to the top of the queue as the key drivers of gold,” Norman said.

The U.S. dollar, which was boosted by hawkish comments from various Fed officials in the previous session, was firm on Wednesday.

Philadelphia Fed President Patrick Harker suggested he would support an interest rate increase at a mid-March policy meeting as long as inflation, output and other data until then continue to show the U.S. economy is growing.

Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion, while also boosting the dollar.

"Our economists expect three rate hikes in 2017 and see the probability of a rate hike by June at 80 percent, and we see U.S. long dated real rates rising slightly, placing downward pressure on gold," Goldman Sachs said in a note.

Investors were also waiting for an address by Trump to Congress next week at which he is expected to announce tax policies.

Spot silver rose 0.2 percent to $17.98 an ounce and platinum shed 0.1 percent to $998.40.

Palladium dropped 0.9 percent to $772 after climbing nearly 10 percent since late January.

"Strength in palladium is still remarkable given that car sales have been somewhat weak in January, especially in China," Menke said.

"I'd say that palldium prices and sentiment should come under pressure once we get more evidence that China is indeed weaker."

(Additional reporting by Nallur Sethuraman in Bengaluru and Jan Harvey in London; Editing by Jane Merriman and Susan Thomas)