Gold above $1,200/oz but U.S. rate outlook caps gains

By Clara Denina

LONDON (Reuters) - Gold rose on Tuesday as positive technical signals helped the metal to recover from early losses that briefly pulled it below $1,200 an ounce.

Spot gold was up 0.3 percent at $1,210.36 an ounce at 1254 GMT, having dropped by nearly 1 percent to a session low of $1,194.90.

U.S. gold for April delivery gained $2.30 to $1,210.60 an ounce, a 1.3 percent rebound from an earlier low of $1,194.60.

"Stops were triggered overnight in Asia with good volume trading ... prices didn't spend a lot of time under $1,200 ... and seem to be forming a nice technical base in the low $1,190s," Deutsche Boerse's MNI senior analyst Tony Walters said.

"(But) if the U.S. non-farm payrolls data is a better number, the hawks will see it as a reason for the Federal Reserve to raise rates and gold will get hit."

Gold shrugged off a stronger dollar, which hit an 11-year peak versus a basket of currencies on strong Treasury yields.

A strong dollar makes dollar-denominated gold more expensive for holders of other currencies, reducing demand. But traders said the metal was helped by interest rate differentials between the United States and Europe, which make it a valuable alternative to European bonds.

Expectations for an increase to U.S. interest rates were likely to limit bullion's gains in the short term, keeping it below Monday's two-week high of $1,223.20. Gold fell 5.5 percent in February, its biggest monthly loss in five months, with the strengthening economy increasing the likelihood that the Federal Reserve will raise rates this year for the first time since 2006.

"Despite most people swaying back and forth on the timing of the U.S. rate hike, there is still consensus that it will happen this year," said Mark To, head of research at Hong Kong's Wing Fung Financial Group.

Seven of the Fed's 17 members have said they at least want the option of an rate rise in June on the table, or have pushed in general for an earlier increase in expectation that wages and inflation will turn higher.

Structural reforms in China, aimed at a more sustainable pace of economic growth, would also keep gold demand in check, To said.

Most analysts expect China's gold imports via main conduit Hong Kong to recover this year but to stay below the record 1,158.16 tonnes imported in 2013.

Spot silver rose 1 percent at $16.52 an ounce, while palladium dropped 0.3 percent to $824.90 an ounce and platinum edged 0.4 percent higher to $1,188.45 an ounce.

(Additional reporting by Manolo Serapio Jr in Singapore; Editing by David Goodman and Louise Heavens)