Gold futures settle higher as Fed stays cautious

New York (Jun 18)  Gold rose back above $1,200 an ounce on Thursday, leading a rally across most precious metals after the Federal Reserve indicated after a policy meeting that U.S. interest rates may rise more slowly than expected.

Silver hit its highest in two weeks and platinum was on track for its biggest one-day rise in a month as the comments knocked the dollar to a one-month low against a currency basket.

Fed policymakers said on Wednesday that an increase from the current near-zero interest rate would be appropriate only after further improvement in the labor market.

Precious metals have benefited strongly in recent years from record low U.S. rates, which have cut the opportunity cost of holding non-yielding assets while keeping the dollar in check.

Prices have come under pressure this year, however, from expectations that rates will soon rise for the first time in nearly a decade.

Spot gold was up 1.37 percent at $1,201.29 an ounce, while U.S. gold futures for August delivery settled up $25.20 at $1,202.00 an ounce.

Earlier on Thursday, gold tracked its best daily gain since May 13, when it had gained 2.16 percent. If gold futures surpass 2.4 percent, it would be the metal's best day since April 27 when gold gained 2.4 percent.

"This is all about the Fed and the lower rate hike projections," Saxo Bank analyst Ole Hansen said. "It's not just a gold move as both silver and platinum have kept up with the pace of the rally since yesterday."

"(The Fed was) a bit more dovish than the market had expected considering the improvement in economic data since the last meeting," he said. "Two quarter-percentage-point hikes before the end of the year could easily become just one if Greek worries, a strong dollar and low inflation outlook continue."

Traders are now focusing on developments related to the Greek debt crisis.

German Chancellor Angela Merkel said on Thursday it was still possible for Greece to reach an agreement with its international creditors, striking a conciliatory tone ahead of a key meeting despite Athens' intransigence.

However, the head of euro zone finance ministers said he was pessimistic about the chances of a quick deal, saying an agreement on more loans for reforms has to add up financially, which means Greece must present new proposals.

Spot gold prices popped 1.4 percent in the best day for the precious metal since May 13. Silver was up 0.3 percent. Copper rose 0.2 percent, snapping its fourth straight daily decline.

Gold extended its historically unusual premium over platinum to more than $110 an ounce, its highest in 2-1/2 years. Platinum hit its lowest in more than six years on Tuesday.

Source: CNBC