NEW YORK/LONDON: Gold rose on Thursday as a drop in the dollar triggered bargain hunting after the previous session's sharp drop on news of possible gold sale by Cyprus and uncertainty over Fed's monetary stimulus.
An improving US economic outlook and rallies in the equities market, however, could pressure bullion prices in the near term, analysts said.
The metal was boosted by currency fluctuations as the dollar fell against the euro but rose to a four-year high against the yen. Gold has benefited from the Bank of Japan's pledge last week to inject around $1.4 trillion into its economy to battle deflation.
Bullion's gains came as the S&P 500 index climbed to fresh all-time intraday highs after US data showed jobless claims dropped more than expected.
Gold has recently moved in opposite directions to US equities and an overall improvement in US economic indicators has hurt bullion's safe-haven appeal.
"Regardless of Fed policy, there are many more attractive assets to profit on than gold right now. It looks like the trade right now is buy S&P and sell gold," said Mihir Dange, COMEX gold options floor trader for Arbitrage LLC.
Spot gold rose 0.4 percent to $1,564.10 an ounce by 2:26 PM (1826 GMT), having rebounded from a one-week low of $1,553.10.
US Comex gold futures for June delivery settled up $6.10 at $1,564.90 an ounce, as trading volume about 25 percent below its 30-day average, preliminary Reuters data showed.
Bargain hunters bought gold after bullion dropped 1.6 percent on Wednesday after minutes of the Federal Reserve's last policy meeting showed the US central bank was inching closer to ending its monetary stimulus program.
On charts, gold should benefit from technical buying as the metal is currently testing the bottom of a broad $1,790-$1,530 trading range over the past 18 months, said Ashmead Pringle, president of GreenHaven Continuous Commodity Index fund.
The market now looks forward to Friday when EU finance ministers will begin a two-day meeting in Dublin, most likely to discuss fallout from the messy bailout of Cyprus among other issues.
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