Spot gold extends gains after Fed minutes; Futures settle up

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Gold rose on Wednesday, briefly climbing to a new session high as the dollar pared its gains after U.S. Federal Reserve minutes showed policy makers believed it would be premature to raise interest rates in June.

Many officials at the Fed's April policy meeting believed that a bump in inflation was being offset by a weaker labor market and softer data, according to minutes from the meeting released on Wednesday.

Spot gold was up 0.2 percent at $1,211.06 an ounce, after climbing 0.5 percent to a session high at $1,213.36 after the Fed minutes were released.

U.S. gold futures for June delivery settled up $2 at $1,208.70 an ounce.

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"A close reading of the April minutes shows the committee remains extraordinarily cautious regarding a rate liftoff given members' emphasis on the first-quarter slowdown," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.

"The bar remains quite high for an interest rate move and it appears quite unlikely that it will happen before September if even then."

Hamstrung by uncertainty

Demand for gold continues to fall
Demand for gold continues to fall

Wong added that this should be positive for metals and bonds, and negative for the dollar.

"The dollar and the euro seem to be the direction setters," Afshin Nabavi, head of trading at MKS in Switzerland, prior to the release of the Fed minutes.

"This morning gold looked like it was going to break below $1,200, but held well, though it cannot really rally. It feels like $1,200-$1,215 (is the range) for the short term."

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Gold's firm session comes after it slid sharply on Tuesday.

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.

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.

Monday's drop in holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, to a four-month low of 718.24 tonnes also pointed to cautious investor sentiment.

Appetite for physical gold was lackluster in Asia, dealers said.