Gold gains on lower dollar after Fed remains cautious on rates

By Clara Denina

LONDON (Reuters) - Gold rose more than one percent on Thursday as the dollar remained under pressure after minutes from the Federal Reserve's last policy meeting showed caution over future U.S. interest rates increases.

Fed's policymakers debated whether an interest rate hike would be needed in April at the central bank's meeting on March 15-16, but a consensus emerged that risks from a global economic slowdown warranted a cautious approach.

They signalled that they expected to raise rates twice in 2016 but the timing of the hikes still appears unclear.

Spot gold benefited from a 17-month low in the dollar versus the Japanese yen. Prices touched a one-week high of $1,239.30 an ounce and were up 1.2 percent at $1,236.36 by 1000 GMT.

The metal saw its biggest quarterly rise in nearly 30 years in the three months to March, rallying more than 16 percent and hitting a 13-month high on speculation the Fed was not in a hurry to normalise interest rates. It had however drifted back towards the key $1,200 level in the past week after hawkish comments from several Fed officials.

Gold is sensitive to rate increases as they lift the opportunity cost of holding the non-interest-yielding metal.

"The Fed's minutes yesterday and the dollar's weakness have created an environment that gives gold an additional push and attract some pent-up demand," Saxo Bank senior manager Ole Hansen said.

"The most immediate resistance is $1,244 but a break above $1,255 could suggest a new high in the market."

The Fed should be patient and cautious about raising short-term interest rates, but should nevertheless increase them in a sustained way, Dallas Fed President Robert Kaplan said on Wednesday.

"The gold rally is being tested as risk appetite recovers, undermining the flight-to-quality demand for gold. Still the downside may be limited," HSBC said in a note.

"The longer the hikes are delayed, the better for gold prices."

Assets in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.51 percent to 819.60 tonnes on Wednesday, the first inflow in nearly two weeks.

Silver gained 1.1 percent to $15.22, platinum rose 0.9 percent to $953.90 and palladium was unchanged at $541.17.

(Additional reporting by A. Ananthalakshmi in Singapore; editing by David Evans)