Gold rises on Fed caution over rates, softer dollar

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold ticked up on Thursday after minutes from the Federal Reserve's last policy meeting showed caution over U.S. interest rates and the dollar slumped to fresh 17-month lows against the yen.

Minutes from the Fed's March 15-16 policy meeting released on Wednesday showed policymakers debated whether an interest rate hike would be needed in April, although a consensus emerged that risks from a global economic slowdown warranted a cautious approach.

Policymakers signalled at the close of last month's meeting that they expected to raise rates twice in 2016 but the timing of the hikes still appears up in the air.

Spot gold had gained 0.5 percent to $1,228.20 an ounce by 0659 GMT, after dipping 0.7 percent in the previous session on a recovery in stocks. Spot gold rose 16 percent in the first quarter of the year on speculation the Fed may delay hiking rates.

"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 analyst James Steel said.

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

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

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.

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.

The dollar hit a fresh 17-month low against the yen on Thursday, staying on the defensive after the release of the Fed minutes. The dollar index slid 0.4 percent against a basket of major currencies.

Asian share markets edged higher after a sharp rise in oil prices whetted risk appetite and boosted Wall Street.

(Reporting by A. Ananthalakshmi; Editing by Tom Hogue and Sunil Nair)