By Maytaal Angel
LONDON (Reuters) - Gold rose on Wednesday after marking a seven-week low the previous session, as the dollar dipped on talk that a dovish Federal Reserve chair would be appointed next year.
The greenback eased against a currency basket after a Politico report said Fed Governor Jerome Powell was favoured by U.S. Treasury Secretary Steven Mnuchin over former governor Kevin Warsh. Janet Yellen's term as chair expires in February.
Powell is seen as more dovish than Warsh, who has criticised the Fed's bond-buying programme in the past.
"The market is looking at the dollar at the moment, we've seen an unwind of the fear trade linked to North Korea. That trend is likely to continue," said Martin Arnold, commodity strategist at ETF Securities.
"The dollar will grind higher in the next couple of months," he added.
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ETF sees spot gold edging down to $1,260 an ounce by the year end.
Having touched its lowest since mid August on Tuesday, spot gold had risen 0.3 percent to $1,275.62 an ounce by 1355 GMT. The precious metal is down some 6 percent from a one-year high of $1,357.54 hit in early September.
U.S. gold futures for December delivery rose 0.3 percent to $1,278.20.
Dollar money market futures were pricing in about a 70 percent chance of a rate hike by December, but a more dovish Fed candidate would likely prompt investors to bet on a slower retreat from the current loose monetary policy.
A weaker dollar makes dollar-priced gold cheaper for non-U.S. investors.
In wider markets, global equities hit a record high with investors in exuberant mood in the United States overnight and in Asia later, but sentiment in Europe was soured by a political crisis gathering steam in Spain.
Soaring equities tend to dent the appeal of gold, seen as a safe haven.
"We still feel comfortable with our cautious view on gold as the rebound of the dollar should continue while the slide in (gold) prices increases the risk of further position squaring in the futures market and could trigger selling in the physical market," said Julius Baer in a note.
Holdings of the largest gold-backed exchange traded fund, New York's SPDR Gold Trust GLD, fell 0.58 percent on Tuesday from Monday, while the largest silver-backed ETF, New York's iShares Silver Trust SLV, fell 0.04 percent.
Silver climbed 0.3 percent to $16.64 an ounce.
Platinum rose 0.7 percent to $913.30 an ounce, while palladium climbed 0.4 percent to $919.20. The sister metals, widely used as autocatalysts, hit price parity for the first time in 16 years last week.
(Additional reporting by Apeksha Nair and Arpan Varghese in Bengaluru; Editing by Edmund Blair and Mark Potter)