Gold retreats from 12-week high as investors grab profits

By Marcy Nicholson and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold fell by 1 percent on Thursday, pressured by earlier strength in equity markets on the back of a rally in oil prices, with bullion investors quick to cash in gains from the Wednesday's rally to 12-week highs.

World stock markets were mixed after Wall Street indexes came off their highs and the dollar slipped on bets that U.S. interest rate hikes would be more gradual than the Federal Reserve has suggested. [MKTS/GLOB]

Spot gold was down 0.9 percent at $1,115.36 an ounce at 3:09 p.m. EST (2009 GMT), off a session low of $1,111.56. U.S. gold futures for February delivery settled down 20 cents at $1,115.60 an ounce.

"The initial equity rally generated enough demand for riskier assets that it choked off the oxygen that gold needs to keep going higher," said James Steel, chief metals analyst for HSBC Securities in New York.

"The FOMC was positive for gold but I don't think that necessarily carried into today's trading."

Gold leapt to a 12-week high of $1,127.80 an ounce late on Wednesday after the Fed kept interest rates unchanged and said it was "closely monitoring" global economic and financial developments, while keeping an optimistic view of the U.S. economy.

"(Gold) did jump very much higher overnight, so we're seeing some selling into that rally right now," Mitsubishi analyst Jonathan Butler said. "We're getting up towards the $1,130 level and there's some fairly significant technical resistance once we get up to $1,136."

Higher rates lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

"If investor sentiment deteriorates, lower yielding assets are in demand, gold being one of them," ABN Amro said in a report.

Gold prices moved in the opposite direction of oil, which soared as much as 8 percent after a Russian official said Saudi Arabia has proposed that oil-producing countries cut production by up to 5 percent each. Prices later pared losses. [O/R]

Among other precious metals, UBS Wealth Management said in a note that it remained bearish on silver prices, forecasting they will fall to $12 an ounce in three months but rebound to $14.50 in 12 months.

Spot silver was down 1.6 percent to $14.24 an ounce and platinum was down 1.9 percent at $863.31 an ounce. Palladium was down 1.8 percent at $488.20 an ounce.

The official London benchmark price for silver settled on Thursday more than 80 cents below the spot price.

(Additional reporting by Manolo Serapio Jr. in Manila, Editing by Alexander Smith and Meredith Mazzilli)