Gold steady above $1,200 as June rate hike prospects dim

SINGAPORE (Reuters) - Gold was little changed above $1,200 an ounce on Thursday, as minutes from the Federal Reserve's policy meet showed the U.S. central bank was unlikely to hike interest rates in June, in line with market expectations.

Spot gold was firm at $1,208.95 an ounce by 0042 GMT, after gaining 0.2 percent in the previous session.

Minutes of the Fed's April meeting, released on Wednesday, showed policymakers believed it would be premature to hike interest rates in June, a view that is already widely held in the market following disappointing U.S. economic data. The minutes showed Fed officials pushing the prospect of a rate hike later into the year.

The minutes also highlighted the quandary the Fed faces in trying to avoid the market volatility tied to a rate hike while sticking to its meeting-by-meeting guidance on when that move will come.

Rising rates tend to weigh on gold because they increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.

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 an expected rise in U.S. interest rates.

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

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.41 percent to 715.26 tonnes on Wednesday - the lowest in four months.

Russia's gold reserves rose to 40.1 million troy ounces as of May 1 compared with 39.8 million ounces a month earlier, the central bank said on Wednesday.

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(Reporting by A. Ananthalakshmi; Editing by Michael Perry)