Gold steady as equities drop, US rate hike prospects wane

London - Gold held on to the previous session's gains on Wednesday as Asian stocks stumbled and weak US economic data undermined expectations of a near-term interest rate hike.

The metal has had a stellar year so far, surging about 28%, as investors sought the safe-haven asset amid mounting economic worries, predominantly in the Western world.

Spot gold was up slightly at $1 364.15 an ounce by 08:25, after hitting a high of $1 367.33, its loftiest since July 11, in the previous session.

US gold dipped about 0.1% to $1 371.50 an ounce.

"We saw the equity markets weaken overnight and that has certainly helped the risk-off mode," said ANZ analyst Daniel Hynes.

Asian shares bowed lower on Wednesday with MSCI's broadest index of Asia-Pacific shares outside Japan falling about 1%.

The yen lorded over a weakened US dollar as fears that the Bank of Japan may retreat from its massive bond-buying campaign added to a shakeout in debt markets globally.

"We see that the strong yen has helped push Japanese investors back into the gold markets," Hynes added.

A report from the US Commerce Department on Tuesday showed inflation was still muted in the country, which together with the anaemic economic growth pace in the second quarter, could encourage a cautious Federal Reserve to keep interest rates at current levels for a while.

The metal is highly sensitive to US interest rates, increases which lift the opportunity cost of holding non-yielding gold while boosting the dollar, in which it is priced.

"We see further upside in gold and would not be surprised to see values get to and even break $1 400, especially if there is continued dollar weakness and more wobbles in the US equities," INTL FCStone analyst Edward Meir said in a note.

Spot gold may retrace moderately to a support at $1 358 per ounce before retesting a resistance at $1 368, as suggested by its wave pattern and a Fibonacci projection analysis, Reuters technical analyst Wang Tao said.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.62% to 969.97 tonnes on Tuesday.

Among other precious metals, spot silver rose 0.2% to $20.65 per ounce, a day after touching a four-week high of $20.78, while spot platinum fell 0.1% to $1 162 per ounce, after touching $1 177.40, its highest since April 2015, in the previous session.

Spot palladium fell 0.6% to $709.90 per ounce, after rising to $722.90 on Tuesday, the highest since June 2015.