Gold ends nearly 2% higher as early rate hike fears ebb

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Gold settled about 2 percent higher on Thursday, near its highest level in two weeks, after minutes of the latest Federal Reserve policy meeting drove markets to push back expectations for the likely timing of an interest rate rise.

U.S. gold futures settled $19.30 higher at $1,225.30 an ounce, up 1.6 percent on the day, after touching a two-week high of $1,234 an ounce earlier.

Spot gold rose to its highest since Sept. 23 at $1,233.20 an ounce early on Thursday and was trading up 0.3 percent at $1,225.

It rebounded nearly 4 percent from a 15-month low of $1,183.46 hit on Monday, under pressure from better than expected U.S. jobs data.

``The dollar may have overshot a little bit which means short covering for gold,'' Julius Baer analyst Carsten Menke said.

``The key reason we are longer term bearish on gold is that we expect investment demand to continue to fade because of the economic recovery in the United States, which means that the Fed will ultimately hike interest rates.''

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The dollar recovered from a two-week low against a basket of major currencies after positive U.S. jobless claims data.

Minutes of the Federal Reserve's Sept. 16-17 meeting, released on Wednesday, showed that Fed officials want to tie an interest-rate rise to U.S. economic progress, though they expressed concern about the dual threat of a rising dollar and economic slowdown in Europe and Asia.

That prompted investors to bet that the Fed is in no rush to tighten after years of monetary stimulus.

The dollar had posted weekly gains for 12 consecutive weeks and its strength, coupled with a string of positive U.S. economic data, had been driving gold's declines over the past few weeks. Investors tend to withdraw from non-interest-bearing assets to seek higher yields elsewhere when the dollar gains.

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Gold benefited from the low interest rates and increased central banks' liquidity that have prevailed in the years after the 2008 financial crisis.

Despite a rebound in gold prices, which rose for four consecutive sessions, longer-term sentiment remains bearish on the prospect of further gains in the dollar.

``Despite the new interpretation of the minutes, we still believe that the Fed's window to raise rates will be in the first half of 2015 and so do not see anything significantly changing in terms of the gold outlook,'' said INTL FCStone analyst Edward Meir.

Holdings in SPDR Gold Trust, the world's top gold-backed exchange-traded fund and a good proxy for investor sentiment, fell by 5.38 tons to 762.09 tons on Wednesday - the lowest since December 2008.

On the physical side, premiums in Singapore over London have eased slightly to $4.52 from $5.44 on Wednesday, UBS said in a note.

Chinese buyers returned to the market on Wednesday after a one-week National Day holiday.

``The initial demand out of China is encouraging, especially as a full circle of players won't be back until Monday,'' UBS added.