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Gold turns flat as market digests Fed minutes

AP

Gold flattened on Thursday as expectations that the Federal Reserve would exercise patience in raising interest rates left U.S. bond yields flat, though a stronger dollar and rising stock markets limited the gains.

Minutes from the Federal Reserve's latest policy meeting on Wednesday reassured markets that it was in no hurry to raise interest rates, lifting European shares by 2.5 percent.

That initially weighed on gold, but the metal later moved higher. Gold, which has no yield, tends to suffer in a rising interest rate environment.

Spot gold was last down about 0.1 percent at $1,208 an ounce, while U.S. gold futures for February delivery were flat at $1,209 an ounce.

"The fact that we kicked off the year with this kind of resilience is sending a signal that negative sentiment has been forced to be reduced," Saxo Bank senior manager Ole Hansen said.

"And it is because this continued drop in bond yields and deflation risks outside the U.S. don't represent an environment where the Fed is going to aggressively raise interest rates."

The benchmark 10-year U.S. Treasury yield was higher at 2 percent. As gold pays no interest, low returns from U.S. bonds and other markets is seen as positive for the metal.

Among currencies, the dollar hit a 9-year high against the euro, as investors ramped up bets the European Central Bank was getting closer to loosening monetary policy to ward off deflation.

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Weakness in the euro lifted gold priced in the single currency 0.8 percent to a new 15-1/2 month high at 1,031.68 euros an ounce.

Analysts are awaiting the release of U.S. non-farm payrolls data for December on Friday, a key barometer of the health of the U.S. economy. An upbeat report is likely to support the view that the Fed will raise rates sooner rather than later.

"The market is likely to consolidate in the period leading up to U.S. non-farm payrolls on Friday within a $1,200-1,220 range," precious metals house MKS said in a note.

In a reflection of investor sentiment, the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, reported another 3-tonne outflow on Wednesday, bringing its holdings to their lowest since late 2008 at 704.83 tons.