Gold steadies off 3-1/2-month high as dollar recovers

By Jan Harvey

LONDON (Reuters) - Gold steadied on Thursday as a recovery in the dollar kept the metal off the previous session's 3-1/2 month high, but remained supported by expectations that the Federal Reserve will hold off raising interest rates this year.

The dollar was up 0.3 percent against the euro after posting hefty losses in the previous session, with the single currency slipping after European Central Bank policymaker Ewald Nowotny said that it was now "obvious" the bank must do more to stimulate the euro zone economy. [FRX/]

Spot gold was at $1,184.86 an ounce at 1141 GMT, little changed from $1,184.81 late on Wednesday, while U.S. gold futures for December delivery were up $5.50 an ounce at $1,185.30.

The metal rallied 1.4 percent on Wednesday in a fourth day of gains as downbeat economic data from the United States and China fuelled expectations that the U.S. central bank would postpone its first rate hike in nearly a decade.

Gold, which benefits from low interest rates that cut the opportunity cost of holding non-yielding assets, rallied to its highest since late June at $1,190 an ounce, picking up momentum as it broke chart resistance at its 200-day moving average.

"Once gold gets above $1,170 an ounce and the 200-day moving average, it puts it one the radar for institutional investors," Sharps Pixley chief executive Ross Norman said.

"The prospect of a rate rise seems to be getting further and further out, so it was natural that gold would recover to some extent, but the speed has been quite impressive."

The world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, said its holdings rose 7.7 tonnes on Wednesday, its first inflow since Oct. 1 and the biggest of any day since Feb. 2.

"There was increased interest from the investment side yesterday," Commerzbank said in a note.

Physical buying of gold however softened due to the rise in prices.

Premiums on the Shanghai Gold Exchange, an indication of demand in top consumer China, fell to about 50 cents an ounce on Thursday from $2-$3 in the previous session. Earlier in the day, the Chinese prices had even dipped to a small discount.

Investors will be watching for more data due later in the session, including weekly jobless claims, for clues about the economy and its impact on the Fed monetary policy.

Silver was flat at $16.15 an ounce, after touching its highest since late June in the previous session at $16.18 an ounce. Platinum was down 0.1 percent at $995.24 an ounce and palladium was flat at $697 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore, editing by William Hardy)