Gold steadies as dollar falls, June rate rise prospects dim

By Clara Denina

LONDON (Reuters) - Gold steadied on Thursday as the dollar fell following minutes from the Federal Reserve's policy meeting showing the U.S. central bank was unlikely to raise interest rates in June.

Spot gold was unchanged on the day at $1,209.04 an ounce by 1146 GMT, while U.S. gold futures for June delivery were up 0.1 percent at $1,209.60 an ounce.

"There is now good psychological support around $1,200, the chart picture looks promising after relatively unsurprising Fed minutes and I think the market is looking at what is going to come out later in the day including jobless claims," MKS SA senior vice president Bernard Sin said.

Minutes of the Fed's April meeting, released on Wednesday, showed policymakers believed it would be premature to raise interest rates in June. That view was widely held in the market following disappointing U.S. economic data over the past few weeks that weighed on the dollar, in turn helping gold hit a three-month high of $1,232.20 on May 14.

The minutes showed Fed officials pushing the prospect of a rate increase later into the year, further dampening appetite for the dollar, which fell 0.3 percent versus a basket of leading currencies.

"Gold will benefit from the Fed's decision to postpone its rate hike and the bar for gold's support level looks to be raised from here," said Phillip Futures analyst Howie Lee.

Higher rates would increase the opportunity cost of holding non-yielding bullion.

Gold prices have struggled to break out of a $1,170-$1,230 an ounce range since mid-March, hamstrung by uncertainty over the timing of a U.S. rate rise.

"If gold manages to break above $1,220 decisively, we think a sustained rally in prices would probably materialise," Lee said.

The market was awaiting the release of weekly U.S. jobless claims and April home sales data, due later in the day.

However, investor sentiment has turned bearish in recent days as prices have fallen from the three-month highs reached earlier this week.

Outflows in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, continue to undermine investor sentiment. Holdings of the fund fell 0.41 percent to 715.26 tonnes on Wednesday, the lowest in four months.

Silver was up 0.4 percent to $17.14 an ounce. Platinum was down 0.2 percent to $1,152.24 an ounce and palladium rose 0.7 percent to $778 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by David Evans and Mark Potter)