Gold keeps gains above $1,200 on safe-haven bids

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold retained sharp overnight gains on Wednesday, bolstered along with other safe-haven assets as risk-aversion in the market sent equities tumbling.

Asian shares fell as a nascent recovery in crude prices lost momentum after Saudi Arabia's oil minister effectively ruled out production cuts by major producers anytime soon. The yen gained against key peers such as the dollar and euro.

Spot gold eased slightly to $1,225.60 an ounce by 0659 GMT, after gaining about 1.5 percent in the previous session.

"Bullion's ability to hold above $1,200 is impressive. The longer it does so, the stronger a base it will build," said HSBC analyst James Steel. "As long as gold-ETF demand holds up, we believe the gold rally can be sustained."

Investors have been channelling money into bullion, as shown by flows into exchange-traded funds.

Assets in SPDR Gold Trust, the top gold-backed ETF, are at their highest since March 2015. The fund's inflows since the beginning of the year have already surpassed outflows for the whole of 2015.

The inflows so far have been able to offset the lack of interest from key Asian buyers, who have taken advantage of the gold rally to sell bullion and take profits.

Discounts in India are at a record of about $50 an ounce to the global benchmark, while in China they are at about $1.

Gold has gained 16 percent so far this year, making it one of the best performing assets of the year, on the back of concerns over the global economy and the sell-off in stocks.

Technically, gold looks set to test recent highs at $1,240 and then a one-year top of $1,260, MKS Group trader Jason Cerisola said.

The metal has also been helped by speculation that the Federal Reserve may not raise U.S. interest rates this year, after the first rate hike in nearly a decade in December.

Signs of a slowdown in the global economy and volatile financial markets have led investors to bet against rate hikes any time soon. Prices for U.S. fed funds futures suggest investors see little chance of any increases this year.

The Fed may need to keep U.S. interest rates unchanged for an "extended period" to give inflation time to rise back to the central bank's 2-percent target, Dallas Fed chief Robert Kaplan said on Tuesday.

However, Kansas City Fed President Esther George said the U.S. central bank should consider raising interest rates at its next policy meeting in March.

Among other precious metals, silver eased 0.3 percent. Platinum dipped 0.7 percent, edging toward a two-week low of $913.50 reached earlier this week.

(Reporting by A. Ananthalakshmi; Editing by Joseph Radford and Biju Dwarakanath)