Gold firms as dollar eases, markets brace for Fed

By Swati Verma

BENGALURU (Reuters) - Gold firmed on Monday as the dollar eased from near 18-month highs, adding to bullion's appeal among holders of other currencies, with investors looking to a U.S. Federal Reserve meeting for clues on interest rate developments next year.

Spot gold was up 0.1 percent at $1,239.46 per ounce by 1259 GMT. U.S. gold futures rose 0.2 percent to $1,243.60 per ounce.

Markets have priced in a rate rise by the Fed at its Dec. 18-19 Federal Open Market Committee (FOMC) meeting, so the focus will be on how many hikes will follow in 2019, analysts said.

"The market is gearing up for price-friendly news this week from the FOMC and later, from China's annual Central Economic Work Conference," Saxo Bank analyst Ole Hansen said, referring to a closed-door gathering of party leaders and policymakers.

"Based on the data released on Friday, we can see the hedge funds are net long in gold for the first time in five months. So, they are gearing up towards a dovish FOMC rate hike stance on Wednesday," he said.

Speculators switched to a net long position in gold of 10,252 contracts, adding 11,791 contracts in the week to Dec. 11, the U.S. Commodity Futures Trading Commission said. "Shifting expectations about U.S. monetary policy should remain a major source of volatility for gold, but headwinds from the interest-rate cycle should soften as the year progresses. That said, sustained strength of the U.S. dollar remains the key risk for gold also next year," Julius Baer analysts wrote.

Gold prices rose to a five-month peak of $1,250.55 last week, but gave up their gains as the dollar strengthened.

The dollar, however, slipped 0.3 percent on Monday, having hit a nearly 18-month peak in the previous session.

Silver gained 0.4 percent to $14.62 per ounce, while platinum was down 0.3 percent at $785 per ounce.

Spot palladium rose 1.2 percent to $1,252.20 per ounce. The metal climbed to a record high of $1,269.25 last week and has risen nearly 18 percent so far this year due to a prolonged deficit in the market.

"We believe the tightness is partly due to the market's small size, its lack of transparency and insufficient liquidity. Together with the bullishness of the technical traders, this provides the potential for even higher prices," Julius Baer analysts wrote.

"Yet we do not believe these price levels would be sustainable in the medium to longer term."

(Reporting by Swati Verma and K. Sathya Narayanan in Bengaluru; Editing by Dale Hudson and Kirsten Donovan)

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