By Peter Hobson
LONDON (Reuters) - Gold prices held near seven-week highs on Wednesday after data showed fewer new jobs than forecast were created in the United States in July, bolstering expectations that the Federal Reserve will be cautious about raising interest rates.
Investors were looking ahead to the more comprehensive U.S. non-farm payrolls report on Friday for a clearer indication of the Fed's intentions. [ECONUS]
Gold is highly sensitive to rising rates because they lift bond yields, raising the opportunity cost of holding non-yielding bullion, and tend to boost the dollar, in which gold is priced.
Spot gold was up 0.1 percent at $1,269.91 an ounce at 1449 GMT. It touched $1,273.97, the highest since June 14, on Tuesday, having risen nearly 6 percent from a low in early July.
U.S. gold futures were 0.2 percent lower at $1,276.50 an ounce.
While weak employment data may dissuade the Fed from aggressive interest rate increases, gold is likely to come under pressure from the bank's plans to shrink its balance sheet, said Mitsubishi analyst Jonathan Butler.
"If the Fed is no longer investing the proceeds of its maturing debt then we would expect the price of those securities to go down and the yield to go up, which is not good for gold," he said.
Gold was however supported by the dollar at near 15-month lows and U.S. bond yields which fell after the U.S. Treasury Department gave no indications about new long-dated issuance in a quarterly refunding statement. [FRX/] [US/]
On the charts, Fibonacci resistance for gold was at $1,274.70 with support at $1,261.30, analysts at ScotiaMocatta said.
Demand for physical gold has been weak, with holdings in the largest gold-backed exchange-traded-fund, the SPDR Gold Trust, falling more than 7 percent in July, the biggest monthly outflow since April 2013. [GOL/ETF]
In other precious metals, silver was down 0.2 percent at $16.67 an ounce after earlier touching its highest since June 29.
Platinum was up 0.5 percent at $948 an ounce.
Palladium, used in the automotive industry for emission-controlling catalytic converters, was 1.2 percent higher at $902.90 an ounce after rising to $906, the highest since June 13.
But U.S. car sales data had disappointed, analysts at Commerzbank said. Speculative investors were keeping the price elevated, they said in a note. "We no longer see any justification for the high palladium price." [L1N1KN0IC]
(Additional reporting by Nithin Prasad and Arpan Varghese in Bengaluru; editing by Adrian Croft and David Evans)
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