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Gold extends gains after latest Fed meeting minutes

[NEW YORK] Gold extended gains after September minutes from the US Federal Reserve showed policymakers debated the prospects of a pickup in inflation and the path of future interest rate rises if it did not.

The US central bank should gradually increase interest rates over the next two years, bringing the federal funds rate to 2.5 per cent, said San Francisco Fed President John Williams, separately at an event in Utah.

Spot gold was up 0.4 per cent at US$1,292.88 per ounce by 3.43pm EDT (1943 GMT), while US gold futures futures for December delivery settled down US$4.90, or 0.4 per cent, at US$1,288.90 per ounce, prior to the release of the minutes.

"The Fed minutes seemed to be stressing that low inflation may not be transitory and emphasised data dependency," said Bart Melek, head of commodity strategy at TD Securities in Toronto.

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"This is somewhat positive for gold relative to where we were positioned just ahead." Gold could reach US$1,300 per ounce by week's end, Mr Melek added.

Gold is highly sensitive to rising interest rates, as these increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which the metal is priced.

Spot gold hit the highest level in nearly two weeks on Tuesday, and on Wednesday, made its fourth straight day of gains.

Before that, gold had been declining since early September after touching a 1-year high of US$1,357.54.

The dollar index fell to the lowest in nearly two weeks, making dollar-priced gold cheaper for buyers using other currencies.

"These concerns about the ramifications of the Catalan independence referendum are fading, giving some support to the euro and weakening the dollar," said Jens Pedersen, senior analyst at Danske Bank in Copenhagen.

Catalonia's leader, who baulked earlier at making a formal declaration of independence, together with more upbeat predictions for the global economy, helped push world stocks to another record high.

"With equities at all-time highs, gold also looks attractive as a hedge, especially given the correlation between the two assets has remained in negative territory this year," Joni Teves, strategist at UBS in London, said in a note.

In other precious metals, silver rose 0.8 per cent to US$17.22 per ounce, having hit a three-week high in the previous session.

Platinum rose 0.02 per cent to US$929.20 per ounce, hitting a two-week high of US$934.50 and palladium increased 2.8 per cent at US$959.75, a one-month high.

REUTERS