Gold slips from 3.5-month peak

BENGALURU, Jan 3 (Reuters): Gold eased from an earlier 3.5-month high on Wednesday and was on track for its first day of losses in nearly three weeks as a firmer tone to the dollar pressured assets priced in the US currency.

The dollar's late December retreat drove gold sharply higher over the same period, leading to fears that the metal was becoming overbought.

Spot gold was down 0.3 per cent at $1,314.03 an ounce at 1040 GMT, off an earlier peak of $1,321.33, while US gold futures for February delivery were down 80 cents an ounce at $1,315.30.

"It's still the dollar which is still very much in the driving seat for gold," Julius Baer analyst Carsten Menke said. "We're bearish on the euro versus the US dollar, so if that materialises, and this close relationship holds between gold and the dollar, it should move towards $1,225 or so."

The dollar rose 0.3 per cent versus the euro in early trade, though it remained near a four-month low after declining nearly 3.0 per cent in the last three weeks.

Investors are awaiting manufacturing data and minutes of a December US Federal Reserve meeting due later in the day, which will be closely watched for clues on the outlook for US monetary policy.

Gold, which as a non-yielding asset is highly sensitive to rising interest rates, fell in the run-up to the third US interest rate hike of 2017 in December, but quickly recovered, climbing 5.0 per cent from its mid-month low to the year's close.

Spot gold's 14-day relative strength index (RSI) touched 75 on Tuesday, it highest since September 2017. An RSI above 70 indicates a commodity is overbought and could herald a price correction, technical analysts say.

"Relative strength index shows the metal at overbought levels, which may lead to short-term selling," ScotiaMocatta analysts said in a research note.