Gold edges up on subdued physical demand, short-covering

By Chris Prentice and Clara Denina

NEW YORK/LONDON (Reuters) - Gold prices edged higher on Wednesday as subdued cash demand and investor short-covering helped offset a stronger U.S. dollar.

Spot gold (XAU=) was up 0.27 percent at $1,141.92 per ounce by 2:18 p.m. EST (1918 GMT), after hitting $1,148.98 on Tuesday, the strongest since Dec. 14.

The most active U.S. gold (GCcv1) futures for February delivery settled up $2.1, or 0.18 percent, at $1,140.90 per ounce.

Traders were covering short positions in options-related dealings and year-end demand from China and Russia buoyed prices, said George Gero, managing director at RBC Wealth Management.

"Gold is holding up despite lots of bears in the woods for lots of good reasons," he said.

Spot prices are poised to finish the year up about 8 percent despite an 8 percent drop in November, as U.S. Treasury yields rose after Donald Trump's election led to speculation his commitment to infrastructure spending would spur growth.

Gold hit a 10-month low on Dec. 15 as solid U.S. economic data prompted the Federal Reserve to raise U.S. interest rates for the first time in a year. The central bank signalled three more increases next year, up from the previous projection of two.

Recent upbeat U.S. data has helped underscore expectations the Fed will raise interest rates more quickly next year, which would lower demand for non-yielding assets such as bullion, while boosting the dollar in which it is priced.

The dollar index (.DXY) edged higher against a basket of six main currencies on Wednesday.

"In the short term, we are focussed towards support at $1,100 and a break of this will be very bearish for the metal. As for the upside, we really need to break the level of $1,170 and $1,200," said Naeem Aslam, chief market analyst at ThinkMarkets.

Reflecting bearish investor sentiment, assets in the SPDR Gold Trust (GLD), the world's largest gold-backed exchange-traded fund, fell 0.14 percent to 823.36 tonnes on Tuesday. Holdings are down about 13 percent since the U.S. presidential elections. [GOL/ETF]

The Shanghai Gold Exchange, the world's biggest physical bullion exchange, said on Wednesday it would curb the amount of gold investors can trade at one time, a move analysts said would limit institutional investors' influence on prices.

Spot silver (XAG=) was up 0.31 percent at $16 an ounce. The metal rose about 1.5 percent on Tuesday.

Platinum (XPT=) platinum was down 0.13 percent at $899.30 per ounce and palladium (XPD=) fell 0.48 percent to $667.80, after rising over 2 percent in the previous session.

(Additional reporting by Swati Verma in Bengaluru; Editing by Alexandra Hudson and Richard Chang)