Gold steady as short-covering, Fed chair's remarks lend support

Gold prices held steady on Monday after seeing their best gain in over a year the session before, boosted by short-covering and as comments from the head of the US Federal Reserve signalling a gradual approach to interest rate hikes weighed on the dollar.

Speaking at a research symposium at Jackson Hole, Wyoming on Friday, Fed Chair Jerome Powell made the case that gradual rate hikes were the best way to protect US economic recovery, keep job growth strong and inflation under control.

The remarks appeared to have disappointed dollar bulls hoping for a more hawkish message.

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"Jerome Powell's comments introduced some uncertainty into the market, with a stress on policy gradualism," said Nicholas Frappell, general manager at Australia-based ABC Bullion.

Spot gold was up 0.1 per cent at $1,206.34 per ounce by 0420 GMT. It had climbed 1.7 per cent on Friday in its biggest one-day percentage gain since May 2017. US gold futures were down 0.1 per cent at $1,212.70 an ounce.

"The weaker USD is giving gold a nice lift after Fed Chair Jerome Powell signalled that the FOMC remains on a gradual rate hike path," said Stephen Innes, APAC trading head, OANDA.

"While the speech was a tad dovish, gold's resurgence may be as much position-related as it is a real demand given the extended short gold positions that have been built up over the past few weeks which resulted in several stop losses runs getting triggered."

Hedge funds and money managers increased their net short position in COMEX gold contracts to another record in the week to August 21, adding 1,306 contracts to bring it to 78,579 contracts, the largest since records became publicly available in 2006, data showed.

"The market is extremely short and at some stage managed money shorts were likely to be buyers ... The rapidity of the move (on Friday) suggests the direction came from short covering," ABC Bullion's Frappell said.

Higher activity in gold options amid geopolitical tensions and a record-long bull market for US equities suggest that investors are betting gold prices have found a floor, traders said.

In the wider markets, the dollar index, which tracks the greenback against a basket of six major currencies, was nearly flat at 95.116.

Among other precious metals, spot silver edged up 0.1 per cent to $14.81 an ounce, while platinum was down 0.3 per cent at $787.99. Palladium was flat at $936.50 an ounce after touching a one-month high of $940.50 earlier in the session.