Flight to safety sends gold surging above $1,200 after Yellen

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold surged to its highest in 8-1/2 months on Thursday as investors bet that the Federal Reserve could find it hard to hike U.S. interest rates this year, while safe-haven demand amid a tumble in equities and the dollar also boosted the metal.

The Fed is unlikely to reverse its plan to raise interest rates further this year, but tighter credit markets, volatile financial markets, and uncertainty over Chinese economic growth have raised risks to the U.S. economy, Federal Reserve Chair Janet Yellen said on Wednesday.

Yellen said she expected continued U.S. economic growth would allow the Fed to pursue its plan of "gradual" rate hikes, but her comments kept the central bank's options open.

A slowing of rate hikes could help bullion, keeping down the opportunity cost to hold it.

Spot gold jumped to an intra-day high of $1,213 an ounce, its highest since May 22, before paring gains to trade up 0.8 percent at $1,206.10 by 0222 GMT.

U.S. gold rose to an intra-day high of $1,215.30 an ounce, a near-nine-month peak.

"Stop loss orders are being triggered on the break of $1,200," said MKS Group trader Jason Cerisola.

Silver is also well bid, with the 200-day moving average providing critical support at $15.10, he said.

Silver rose 0.5 percent to $15.35 an ounce, not far from a three-month high reached earlier this week.

"Yellen made it clear that while the Fed still expects to continue on its gradual tightening path, policy was not on a pre-set course and would respond appropriately to developments," ANZ analysts said in a note, adding that gold prices will likely get some support from the dovish Fed outlook.

Bullion was also supported by inflows into safe-haven assets as investors fretted over the Fed's rate hike path.

Asian shares sputtered on Thursday as Yellen's tone of guarded optimism led to an indecisive finish for Wall Street.

The dollar fell to its lowest since October against a basket of major currencies, and to a 15-month low verses the Japanese yen.

Longer-term U.S. debt rallied hard as investors wagered that either the Fed would be unable to tighten at even a gradual pace, or that if it did hike it would only hasten the arrival of recession and deflation. Yields on 10-year Treasuries fell to their lowest in a year.

(Reporting by A. Ananthalakshmi; Editing by Richard Pullin and Christian Schmollinger)