Gold keeps near 1-1/2-week top as safe-haven draw remains intact

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Gold stayed near a 1-1/2-week high on Thursday in Asia, its safe-haven appeal apparently intact amid investor caution that a recovery in equities and oil prices could be fleeting.

Bullion has benefited from the risk-averse sentiment that has dragged equities and oil to multi-year lows and pushed investors towards assets considered a safe store of value.

Asian stocks and crude oil prices regained some lost ground on Thursday but sentiment remained fragile.

It’s no surprise that gold has edged higher along with other safe-havens like the Japanese yen because “the risk aversion story is here”, said Barnabas Gan, analyst at OCBC Bank in Singapore.

Spot gold was little changed at $1,099.26 an ounce by 0256 GMT. It touched $1,109.20 on Wednesday, its highest since Jan. 8.

U.S. gold for February delivery slipped 0.6 percent to $1,099.60 an ounce.

The metal has found resistance around $1,100 as the threat of further U.S. interest rate increases and a stronger U.S. dollar suggest limited upside potential.

OCBC’s Gan sees gold at $950 by year-end. “This view is very much underpinned by our expectations for the Fed rate hike to occur three more times this year,” he said.

The Federal Reserve hiked rates for the first time in nearly a decade in December and Gan believes a firm U.S. economy would warrant further rate increases, strengthening the dollar and curbing gold’s appeal.

But expectations of an immediate U.S. interest rate hike in March diminished after consumer prices unexpectedly fell in December, offering signs of weak inflation.

BMI Research, part of ratings agency Fitch, also expects gold to fall below $1,000 due to the additional U.S. rate hikes and a resilient U.S. economy.

“However, we see growing risk of disappointing U.S. economic growth. Should the Fed be forced to pause or even backtrack on rate hikes, $1,200/oz would look a likely upside target for gold in 2016,” BMI said in a report.

Spot platinum was flat at $822 an ounce after falling to a fresh 2008 low of $809.85 on Wednesday. Palladium gained 0.3 percent to $494 per ounce and silver slipped 0.2 percent to $14.14.

Johnson Matthey lifted its estimate of last year’s platinum market deficit after a surge in Japanese bar investment late in the year, though it cut its expectations for the palladium market shortfall.

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