Gold extends gains on Fed meeting and geopolitics

By Renita D. Young and Eric Onstad

NEW YORK/LONDON (Reuters) - Gold prices gained on Thursday, one day after the U.S. central bank reassured investors that increases to interest rates would be gradual and as the U.S. dollar softened, with geopolitical uncertainties also providing support.

Investors are awaiting U.S. jobs data expected on Friday for a sense of the country's economic performance that could help influence the U.S. Federal Reserve's pace of increasing interest rates.

Spot gold rose 0.6 percent at $1,312.54 per ounce by 1:33 p.m. EDT (1733 GMT), while U.S. gold futures for June delivery settled up $7.10, or 0.5 percent, at $1,312.70 per ounce.

The greenback was little changed, but seeped into negative territory in a choppy trading session as investors took profits.

The Fed said inflation on a 12-month basis was "expected to run near the committee's symmetric 2 percent objective".

The statement showed the Fed will let inflation overshoot, said Chris Gaffney, president of world markets at EverBank. "What's boosted prices is the expectation that inflation will be allowed to run up a little higher and rates are not going to chase it."

Slowing the pace of interest rate increases would be positive for gold.

Bullion is highly sensitive to rising U.S. interest rates because it becomes less attractive compared with interest-bearing assets.

Julius Baer economists expect the Fed to shift its guidance to four rate hikes this year, from three, which will weigh on gold, said Carsten Menke, commodities analyst at the Swiss bank.

"Rising rates and a temporarily stronger dollar should bring sufficient headwinds to push prices below $1,300 over the coming months," he added.

Uncertainties supported bullion, including U.S.-China trade talks and the potential U.S. withdrawal from the Iranian nuclear accord.

"From the geopolitical standpoint, uncertainty, whether it's surrounding Iran, elections in Africa or trade wars, doesn't translate to strong buying in gold. But we do think it's limiting the downside in prices," said Standard Chartered Bank precious metals analyst Suki Cooper.

Gold demand has made its weakest start to a year since 2008, the World Gold Council said, with stagnant prices and the threat of rising rates leading investors to seek better returns elsewhere.

Meanwhile, investors anticipate U.S. non-farm payrolls data on Friday. "Our forecast is they increase. But the key focus is going to be on wage growth," Cooper added.

Among other precious metals, spot silver rose 0.6 percent at $16.45 an ounce, earlier hitting a one-week high at $16.59.

Platinum climbed 1.1 percent at $899.49 an ounce and palladium increased 0.6 percent at $965.

(Additional reporting by Eileen Soreng in Bengaluru; Editing by David Goodman and Chizu Nomiyama)