Rate outlook helps gold to highest in almost three weeks

By Marcy Nicholson and Veronica Brown

NEW YORK/LONDON (Reuters) - Gold prices rose to their highest in almost three weeks on Monday, setting the market on course towards $1,300 an ounce, drawing confidence from continued ultra-low interest rates.

Weak economic data and uncertainty over U.S. monetary policy has contributed to risk aversion, boosting investor appetite for bullion and other assets perceived as safer stores of value, including the Japanese yen.

Spot gold hit $1,258.70 an ounce, its highest since March 22, before retreating slightly to $1,255.93 at 2:33 p.m. EDT (1833 GMT), up 1.3 percent.

U.S. gold futures for June delivery settled up 1.1 percent.

"Very loose monetary policy pursued by several central banks should point to even higher gold prices," Commerzbank analyst Daniel Briesemann said.

"The ECB also increased its bond-buying purchases, and has not ruled out further measures."

In euro terms, the price of gold reached the 1,100-euro mark for the first time since March 30.

Scaled-back expectations for further monetary tightening this year helped gold to its best quarter in nearly 30 years in the three months to March, after the U.S. central bank raised rates in December for the first time in nearly a decade.

On Friday, New York Fed President William Dudley said the central bank must take a cautious approach to further rate increases because of lingering external risks to the U.S. economy.

"We expect the Fed to press ahead with a rate hike in June, but, considering the original path for monetary tightening, the U.S. is looser than expected," Capital Economics commodities economist Simona Gambarini said.

The dollar was broadly supportive for bullion markets, trading down half a percent against a basket of major currency rivals.

Data on Friday showed that hedge funds and money managers cut their net long positions in gold futures and options in the week to April 5, but still not far from a two-month high.

Assets in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell on Friday.

In other precious metals, silver prices outperformed gold, with additional support from the steady inflows of exchange-traded funds and trading of the falling gold-silver ratio.

"The fact that they're rebuilding again is positive," said James Steel, chief metals analyst for HSBC Securities in New York, referring to physically backed exchange-traded funds."In silver, we're seeing a lot of gold ratio trading."

Spot silver gained 3.9 percent to $15.95 an ounce , platinum rose 2 percent to $985.12 and palladium was up 1.1 percent at $544.93 .

(Editing by Louise Heavens, David Goodman and Jonathan Oatis)