Gold steadies, off early highs as equity jitters subside

By Jan Harvey

LONDON (Reuters) - Gold retreated from earlier highs on Wednesday as a rise in European share prices pointed to a retreat in the risk aversion that drove prices to one-year highs last week, though uncertainty over U.S. monetary policy kept the metal underpinned.

Spot gold was at $1,203.63 an ounce at 1210 GMT, up 0.3 percent but off an earlier high of $1,212.20. U.S. gold futures for April delivery were down 0.3 percent at $1,205.10.

Spot prices peaked at $1,260.60 an ounce last week after rallying $200 in less than a month, but have been unable to sustain those gains.

"It was unusual to see that intensity of that run-up higher," Mitsubishi precious metals analyst Jonathan Butler said. "Gold was pretty overbought on a short-term relative strength index basis."

"Once we saw the slight uptick in the dollar over the last couple of days, and equity markets started to get a bit of a bid again, the natural thing was for this safe-haven trade to start to unwind."

Oil and shares rose on Wednesday as investors anticipated less volatile trading, a day after world equities recorded one of their biggest rallies in years and oil prices swung in a 10 percent range. [MKTS/GLOB]

Investors will be closely watching the minutes of the Federal Reserve's latest policy meeting for clues on the expected pace of U.S. rate hikes this year.

Speculation has increased in recent days that the U.S. central bank might resort to negative interest rates to stimulate the economy after Fed Chair Janet Yellen said last week it was an option that would not be taken "off the table".

Gold is sensitive to higher U.S. rates, which boost the opportunity cost of holding non-yielding gold. Expectations for rising rates helped push gold down 10 percent last year.

"(Recent) expectations surrounding interest rate hikes in the United States and interest rate reductions in Japan and Europe have on net been positive for gold," Societe Generale said in a note. "The number of rate hikes expected in the United States this year has been tempered over the past several weeks."

John Paulson, one of the world's most influential gold investors, slashed his bets on bullion at the end of last year by cutting his stake in the top gold-backed exchange-traded fund by 37 percent, a federal filing showed on Tuesday.

Silver was flat at $15.23 an ounce, while platinum was up 0.8 percent at $934.30 an ounce and palladium was up 0.3 percent at $506.75 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Dale Hudson, and Susanna Twidale)