Gold rises as dollar eases; Fed policy eyed

NEW YORK Wed Apr 13, 2011 4:21pm EDT

NEW YORK (Reuters) - Gold rose on Wednesday, recovering from its biggest one-day drop in nearly a month, boosted by the dollar's early fall on expectations the U.S. Federal Reserve will maintain a loose monetary policy despite signs of price pressures.

Spot gold was at $1,457.30 an ounce by 2:39 p.m. EDT, up slightly from $1,453.95 an ounce late Tuesday. It was in the middle of a new, higher plateau, a day after selling off from a record peak at $1,476.21 hit on Monday.

U.S. gold futures for June delivery closed up $2 at $1,455.60 an ounce, then rose further in after-hours trade.

Gold got a boost from the Fed's Beige Book report, which noted signs that higher raw material and energy costs were adding to price pressures.

The Fed's anecdotal report said the U.S. economy kept improving over the past month on gains in manufacturing, but it said companies are feeling higher energy and raw material costs.

Meanwhile, Dallas Fed President Richard Fisher said in an article published on Wednesday that the U.S. central bank risks employing a monetary policy that is too expansive and that allows inflation to run out of control.

"I see the risk that we don't manage to keep inflation under control," Fisher wrote in an opinion piece published in Germany's Handelsblatt business daily, pointing to firming price pressures across the world.

Analysts said fears inflation may be picking up is one factor underpinning gold prices and even spurring new buying.

"The Fed is starting to have some dissension on inflation, Fisher came out and said inflation could ramp up in a meaningful way if the Fed doesn't address it," said Adam Klopfenstein, Senior Market Strategist at Lind-Waldock in Chicago.

"Until you address the underlying factors that are driving gold prices up, they will not meaningfully adjust," he added.

Gold fell below $1,445 an ounce on Tuesday as falling oil prices knocked commodities, but worries over unrest in North Africa and euro zone debt, plus expectations the Fed would lag other central banks in tightening monetary policy, pulled precious metal prices back up on Wednesday.

"It looks like gold held the $1,444 (support level) rather well yesterday," said Afshin Nabavi, head of trading at MKS Finance. "(There was) some demand out of India on the physical front since yesterday. It feels okay here, although it is eyeing oil and silver rather closely."

The prospect that the Fed could rein in its accommodative monetary policy is a potential stumbling block for gold, which as a non-yielding asset has a higher opportunity cost when interest rates rise.

The metal has risen this year as rate rises in the euro zone, China and Australia benefited other currencies versus the dollar, but Fed policy is being eyed.

"The direction of U.S. monetary policy is the key theme this quarter, and the uncertainty surrounding this includes both the timing of any tightening decision as well as its implementation," said UBS analyst Edel Tully in a note.

"This means that gold's movements in the coming weeks will be highly sensitive to the debates among Fed members."

GFMS SEES GOLD ABOVE $1,600/oz

Metals consultancy GFMS said in a widely watched industry report that gold's decade-long price rally could take the metal above $1,600 an ounce by year-end, as investors' appetite for gold sharpens further.

The company sees gold prices averaging $1,455 an ounce this year and sticking to a range of $1,319-1,620 an ounce, executive chairman Philip Klapwijk told delegates at the launch of its Gold Survey 2011.

Investment demand for gold exchange-traded funds softened. Holdings of the largest, New York's SPDR Gold Trust, slipping by nearly a ton on Tuesday.

Holdings of the largest silver ETF, the iShares Silver Trust, eased around 30 tons from a record on the same day, its biggest one-day outflow in about a month.

Hefty inflows into the fund this year have accompanied a sharp rise in silver prices, which peaked at 31-year highs of $41.93 earlier this week.

Silver was bid higher at $40.53 an ounce against $40.04 previously. Platinum was higher at $1,771.49 an ounce against $1,765.70, and palladium advanced to $764.47 against $761.40.

(Additional reporting by Jan Harvey in London; Editing by David Gregorio)

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