Gold at 2-1/2-week high after Fed minutes ease rate fears

London (Apr 10)   Gold rose nearly one percent on Thursday, reaching a 2-1/2 week high as the dollar dropped after minutes from the Federal Reserve's policy meeting suggested officials will be cautious on increasing interest rates soon.

Minutes from the Fed's March 18-19 meeting released on Wednesday showed policymakers were unanimous in wanting to ditch the thresholds they had used to telegraph a policy tightening and did not reveal any discussion of keeping rates near zero for a considerable time.

"Obviously the big driver has been the Fed minutes that was a lot more dovish than the actual statement or Q&A that Yellen had given," Societe Generale analyst Robin Bhar said, referring to Fed chair Janet Yellen.

"That weakened the dollar and gold has taken advantage but unless there fresh buying coming through it is difficult to see where further upside could come from."

"Technically, a test of the upper level around the $1,325 is likely but... it is difficult to see sufficient appetite to take gold back to the $1,400," he added.

Spot gold rose to its highest since March 24 at $1,324.00 an ounce earlier. It was seen up 0.9 percent at $1,323.04 by 1154 GMT.

Gold futures for June delivery gained 1.4 percent to a near-three week high of $1,324.30 an ounce.

Gold prices had come under pressure, falling to a seven-week low of $1,277.90 on April 1, on signs that strong economic data in the United States could prompt further dollar strengthening and after comments from Yellen on March 19 that interest rates could rise in the first half of 2015.

Low interest rates, which cut the opportunity cost of holding non-yielding bullion above other assets, had been an important factor driving gold higher in recent years.

The dollar hit three-week lows against a basket of currencies, dented by weaker U.S. 10-year Treasury yields . Returns from U.S. bonds are closely watched by the gold market, given that the metal pays no interest.

Gold extended gains after European equities turned negative in response to disappointing industrial output figures from Italy and France. The two assets usually keep an inverse relation as gold is seen as an alternative to risk.

As a gauge of investor sentiment, SPDR Gold Trust, the biggest gold-backed exchange-traded fund, attracted fresh money earlier this year but has not seen any inflow since March 24.

Prices in top buyer China slipped back to a discount of about $2 an ounce on London prices on Thursday from a premium in the previous session.

Reflecting weak physical demand, gold stocks sitting in U.S. exchange warehouses are at a 10-month high.

Among other precious metals, silver rose 2 percent to $20.25 an ounce, while platinum touched a three-week high of $1,456.50 an ounce and palladium gained 1 percent to $786.50 an ounce.