Gold Prices Rise Towards $1,650

By Jan Harvey | April 26, 2012 7:11 PM IST

(REUTERS) -- Gold prices rose towards $1,650 an ounce on Thursday after the Federal Reserve opted to keep U.S. interest rates at rock bottom, taking further support from the foreign exchange market as the dollar languished against a basket of major currencies.

Spot gold was up 0.3 percent at $1,649.10 an ounce at 1129 GMT, while U.S. gold futures for June delivery were up $7.30 an ounce at $1,649.60.

In a statement after a two-day meeting to Wednesday, the Fed's policy-setting panel reiterated its expectation that interest rates would not rise until at least late 2014, and took no action on monetary policy.

Gold bulls, who had been hoping for fresh hints of quantitative easing from the Fed, were disappointed, and prices fell below $1,625 straight after the statement. Dollar weakness and price-sensitive buying quickly reversed that, however.

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"The message out of the Fed didn't really change much," Credit Suisse analyst Tom Kendall said. "We had a little sell off immediately after the statement came out, but it quickly recovered.

"I think it would have taken a much greater change in stance coming out of the Fed for gold to really make a big break one way or the other, and given the disappointing U.S. data coming out over the last couple of weeks, I don't think that was particularly likely."

Weakness in the dollar, which makes commodities priced in the unit cheaper for other currency holders, also supported gold, although the U.S. unit steadied against a currency basket as the euro surrendered early gains.

European equities dipped into the red, easing back towards three-month lows after glum euro zone data re-focused investors' attention on the region's problems, eclipsing a run of stronger-than-expected earnings from energy and auto majors.

INDIAN BUYERS SHY AWAY

"The risk for gold here is if the lack of a material change to the macro environment would now force investors to look to gold's internal drivers for direction. And this could prove to be quite a challenge," UBS said in a note.

"The physical demand story has been very uninspiring. Combined volumes on the Shanghai Gold Exchange have been fairly decent of late... but this does little to compensate for the disappointing appetite from India."

Indian gold traders stayed on the sidelines as prices hovered near their highest level in two months due to firm overseas markets and a weaker rupee.

Akshaya Tritiya sales are estimated to have fallen by a half to 10 tonnes this year, as interest was hurt by high prices and weakness in the rupee.

Among other precious metals, silver was up 0.2 percent at $30.74 an ounce. The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose to a three-month high at 53.6 on Wednesday.

The metal fell in gold's wake to its lowest since mid-January on Wednesday, and looks vulnerable to further losses, according to technical analysts, who study past price movements for clues as to the future direction of trade.

"Silver probed to fresh multi month lows to 30.00 before recovering," ScotiaMocatta said in a note. "We are bearish silver following the break of huge support pivot 31.00."

"Our target for silver is 28.86, the 76.4 percent retracement of the 26.20 to 37.46 up move. The gold/silver ratio spiked higher to 54.20 before retracing... The ratio is bid with potential for 100 percent retracement to 57.50."

Spot platinum was up 0.6 percent at $1,554.49 an ounce, while spot palladium was up 0.1 percent at $657.97 an ounce.

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