Gold recovers losses on pessimism over Fed rate hike

By Jan Harvey

LONDON (Reuters) - Gold rose on Tuesday, recovering an earlier 1 percent slide on expectations the Federal Reserve will not lift U.S. interest rates this year, which helped push the dollar to three-week lows against the euro.

Chinese trade data earlier gave a further sign the world's economic growth engine is sputtering, stoking fears over global growth and weighing on world shares.

Spot gold was up 0.2 percent at $1,165.70 an ounce at 1355 GMT, off an earlier low of $1,151.16, while U.S. gold futures for December delivery were up 60 cents an ounce at $1,165.10.

Spot prices hit a three-month high of $1,169 on Monday as bets that the Fed would hold off raising rates benefited the metal. Some buyers cashed in those gains earlier on Tuesday, but gold's retreat to session lows proved short-lived.

"Prices at $1,150-1,160 are based mainly on pessimism over how soon the Fed is going to hike rates," Natixis analyst Bernard Dahdah said. "Some of the larger banks have said it will probably be taking place next year, so I can see prices at these levels (for a while)."

Gold has rallied nearly 5 percent since a surprisingly weak U.S. nonfarm payrolls report on Oct. 2 prompted the market to shift expectations of a Fed rate hike to 2016.

The metal, as a non-interest-paying asset, benefited from ultra-low interest rates following the financial crisis, but fell to 5-1/2 year lows this year on expectations that U.S. rates would rise for the first time in nearly a decade.

The Fed refrained from hiking rates at its last meeting in September, citing concerns with the global economy and volatility in financial markets. It holds two more policy meetings in 2015, on Oct. 27-28, and then in December.

In one of the strongest defences yet of a go-slow approach to rate policy, Fed Governor Lael Brainard said on Monday that the U.S. central bank should hold off on any rate hike until it is clear that a global slowdown, trouble in China and other international risks will not push the U.S. recovery off course.

On the physical markets, gold discounts in India widened to a three-month high this week as retail demand remained sluggish amid ample supplies and higher prices. Buying elsewhere in Asia, including top consumer China, was also lacklustre.

MKS said in a note on Tuesday that gold and silver were initially dragged lower by platinum overnight in Asia, though they briefly rebounded prior to the opening of the Shanghai Gold Exchange. "Once the SGE opened, selling in gold and silver accelerated," it said.

Silver was up 0.7 percent at $15.93 an ounce, while platinum was down 0.5 percent at $986.75 an ounce and palladium was down 0.1 percent at $689.22 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Tom Heneghan)