Gold climbs off two-week low as dollar retreats

By Manolo Serapio Jr

MANILA (Reuters) - Gold drifted away from two-week lows on Wednesday as the dollar surrendered some gains, but analysts said bullion is unlikely to rise sharply ahead with losses in the greenback seen limited.

Appetite for gold appeared to have eased after the metal failed to convincingly breach the $1,300 resistance level last week. But it was up 20 percent for the year as expectations for a near-term increase in U.S. interest rates have faded.

Spot gold was up 0.6 percent at $1,273 an ounce by 0656 GMT, after touching a low of $1,257.25 on Tuesday, its weakest since April 28.

The dollar slipped versus a basket of major currencies, making dollar-priced assets such as gold cheaper for holders of other currencies. Softer Asian equities also helped gold.

Mark To, head of research at Wing Fung Financial Group in Hong Kong, said that $1,300-$1,400 would be a reasonable price range for bullion for the rest of the quarter.

Gold is supported largely by expectations that the next U.S. interest rate increase will only happen later in the year as Fed policymakers take note of challenging global economic conditions, he said.

"The current situation is favourable to gold but it is not overwhelmingly favourable," said To, adding that the U.S. economy appears to be in good shape overall. "That's why people take some profits along the way."

U.S. gold for June delivery gained 0.8 percent to $1,274.70 an ounce.

"Looking ahead, we see limited upside for gold pricing given the limited room for the Fed to surprise to the downside, limited room for the dollar to depreciate, and limited room for China to drive (emerging markets) currency strength to contribute to dollar weakness," Goldman Sachs said in a report.

Still, Goldman increased its gold price forecasts for coming months, citing stronger net speculative positioning and a recently weaker dollar. The bank raised its three-, six- and 12-month price outlooks for gold to $1,200, $1,180 and $1,150, from $1,100, $1,050 and $1,000 per ounce earlier.

Other precious metals also advanced, with spot silver gaining 1.2 percent to $17.30 an ounce, platinum up 1.3 percent at $1,059.70 and palladium 1 percent higher at $597.

(Reporting by Manolo Serapio Jr.; Editing by Joseph Radford and Biju Dwarakanath)