Gold steadies after rally, interest rate view supports

By Jan Harvey

LONDON (Reuters) - Gold steadied on Friday as stock markets turned lower, with the metal holding onto the previous day's 2 percent gains on expectations that rock-bottom interest rates will persist.

Spot gold was $1,231.51 an ounce at 1203 GMT, little changed from $1,231.95 late on Thursday. U.S. gold futures for April delivery were up 0.5 percent at $1,232.40.

The metal is correcting after hitting a one-year high at $1,260.60 an ounce last week as turmoil in the wider financial markets fuelled interest in gold as a store of value, and dented expectations that the Federal Reserve would further hike interest rates this year.

Prices remain 14 percent higher than at the start of the year.

"Gold moved up pretty sharply, and a period of reflection and sideways trading would seem appropriate," Simon Weeks, head of precious metals at the Bank of Nova Scotia, said.

"As a safe haven, it is definitely coming into play again. We've had negative interest rate announcements around the world... so perhaps people felt they'd got a little ahead of themselves in terms of their optimism about the economic recovery."

Gold tends to benefit from a lower rate environment, which cuts the opportunity cost of holding non-yielding assets.

The metal has been supported by inflows into gold-backed exchange-traded funds (ETFs), holdings of which have already risen this year by more than they fell in the whole of 2015.

Holdings of the world's top gold ETF, SPDR Gold Shares, rose another 0.38 percent to 713.63 tonnes on Thursday.

Volatility in the wider markets continues to underpin the metal. A halt in this week's oil price rally held back European stocks and pushed German Bund yields lower on Friday as worries about the global economic outlook lingered. [MKTS/GLOB]

"Gold remains in demand in the current market environment, characterised as it continues to be by high levels of uncertainty," Commerzbank said in a note.

In the physical markets, Asian gold demand slowed this week as consumers opted to wait out the metal's biggest price rally in years, with discounts in key consumer India hitting a record high as some investors cashed out holdings.

Silver was flat at $15.40 an ounce, while platinum was up 0.3 percent at $945.90 an ounce and palladium was little changed at $500.25 an ounce.

Gold reached its most expensive versus silver in more than seven years on Friday, with an ounce of gold now worth 80 ounces of silver, against 76.7 ounces at the start of the year.

(Additional reporting by A. Ananthalakshmi in Singapore, editing by Susanna Twidale and Susan Thomas)