Gold edges back from 1-week high as dollar recovers

By Eric Onstad

LONDON (Reuters) - Gold pulled back from a one-week high on Thursday when the dollar recovered after tumbling a day earlier following the U.S. Federal Reserve's decision on interest rates.

The Fed raised benchmark rates for the third time this year as widely expected, but maintained its outlook of three rate increases in 2018 on low inflation concerns.

The dollar slid on Wednesday as the Fed kept its outlook on interest rates unchanged, but recovered and held steady on Thursday.

Gold was likely to hold up well in the short term, although there were risks that bullion could revisit the bottom of its range close to $1,200, said Jonathan Butler, commodities analyst at Mitsubishi in London.

"There's still some supportive factors going towards the year end. We've got a great deal of uncertainty over U.S. tax reform, the U.S. debt ceiling and potentially government funding," he said.

"But if U.S. stock markets continue to fly, if we continue to see flows into some of the more unconventional assets including crypto currencies, then that would erode some of the investor interest in gold as a safe haven and alternative asset."

Spot gold had edged up 0.1 percent to $1,256.25 an ounce by 1100 GMT after earlier touching its highest since Dec. 7 at $1,259.11.

U.S. gold futures rose 0.8 percent at $1,258.50.

Meanwhile, the European Central Bank is likely to bump up some of its economic forecasts on Thursday and may debate tweaking its pledge to keep money at its current, ultra-easy level, but will ultimately reaffirm is policy stance.

"People factor too much hawkishness into these meetings and it disappoints a bit and that's kind of what happened ... the nervousness in the market helped gold," a Hong Kong-based trader said.

Platinum failed to react much to news that South African precious metals miner Sibanye-Stillwater agreed to buy Lonmin, the world's third biggest platinum producer.

"It makes for a good match, but it doesn't resolve oversupply of the PGM (platinum group metals) industry," said Nedbank precious metals analyst Leon Esterhuizen.

Platinum dipped 0.2 percent to $882.85 an ounce. On Tuesday, it touched its lowest since February, 2016. Palladium shed 0.6 percent to $1,010 an ounce.

Silver fell 0.6 percent to $15.97 an ounce, after hitting a five-month low of $15.59 in the previous session.

(Additional reporting by Apeksha Nair in Bengaluru and Zandi Shabalala in London; Editing by Adrian Croft)