Gold steady on weaker dollar after cautious Fed statement

By Clara Denina

LONDON (Reuters) - Gold steadied on Thursday, as the dollar dropped after the Federal Reserve confirmed a recent slowdown in the U.S. economy could hold off any interest rate hike for the time being.

Spot gold was unchanged at $1,203.71 an ounce by 0955 GMT. The metal had hit a three-week high in the run up to the Fed statement, as a string of soft economic data dimmed prospects for a U.S. interest rate hike in June.

U.S. gold futures for June delivery were down $4.80 an ounce to $1,205.30.

The Fed downgraded its view of the U.S. labour market and economy after its two-day policy meeting, although it said the poor performance was in part due to transitory factors. [ID:nL1N0XQ2FV]

Data on Wednesday showed the U.S. economy grew 0.2 percent in the first quarter, down sharply from the fourth quarter's 2.2 percent and below market expectations. [ID:nLNNTFEB9Z]

Gold, however, failed to entirely capitalise on the weaker dollar, which fell 0.4 percent versus a basket of leading currencies, on prospects the U.S. economy will eventually improve and the Fed will raise interest rates. [FRX/]

"Ultimately the determinant for sustained price direction will come from the rate hiking cycle once it is underway ... the inevitability of that remains the constraint on gold prices," Standard Chartered analyst Nicholas Snowdon said.

Higher rates would dent demand for bullion, a non-interest-paying asset.

"(The $1,215 level) is forming considerable resistance and should have been tested overnight with the plummeting greenback, but sizable offers at this level continue to cap the market," said MKS Group in a note.

Traders would now be watching more U.S. data to gauge how it would affect the Fed's timing regarding rates.

Also in focus was the Greek debt crisis, which could boost safe-haven demand for gold.

Euro zone officials sought to wring policy concessions from Greece on Wednesday to unlock urgently needed aid after Athens said it would present a list of reforms for legislation.

Failure to strike a deal would result in Greece defaulting on payments and exiting the euro zone.

Physical bullion demand in Asia has quietened in recent days as gold held above $1,200 an ounce. A significant pick-up in demand would support global prices.

Silver was down 0.2 percent at $16.56 an ounce. Platinum was down 0.1 percent at $1,150.20 an ounce, while palladium was flat on the day at $780.15 an ounce.

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