Gold rose on Thursday, tracking some gains in Japanese futures, but trading was slow as dealers waited to see if the US Federal Reserve would raise interest rates later in the day, as expected.
Spot gold rose to $581.40/582.10 an ounce from $579.60/580.30 an ounce late in New York on Wednesday, when it dropped nearly $2 in volatile trade. In Japan, the benchmark June 2007 gold contract on the Tokyo Commodity Exchange rose 3 yen per gram to 2,211 yen.
Dealers were also looking beyond this week's Fed meeting to gauge from its statement whether the US central bank would make further interest rate increases. Higher rates support the dollar and may diminish gold's allure as an alternative investment.
Gold has fallen as much as 26 percent in June after rising to its highest in 26 years at $730 in mid-May on the back of tensions in the Middle East, record-high oil prices and uncertainty in the dollar's outlook.
"Despite the recent correction, gold prices are forecast to rise across the remainder of 2006 and further in 2007. The key factors that have supported the rise in gold prices remain in place, including geopolitical tensions, high energy prices and investment demand," National Australia Bank said in a report.
"In US dollar terms, gold is forecast to average $633 an ounce in 2006, and increase of 42 percent," it said. The dollar inched up to 116.55 yen just off a two-month high of 116.71 yen marked on trading platform EBS in the week.
The euro eased to $1.2540 from around $1.2555 in late US trade. The Fed concludes a two-day meeting later on Thursday and is expected to lift overnight rates for a 17th straight time to 5.25 percent from 5 percent.
Financial markets have largely factored in another 25-basis- point rise at the Fee's next meeting in August. Any signs the expected rise would be the last of the Fed.'s two-year tightening cycle could hurt the dollar.
"NAB argues the Federal Reserve would be unwise to tighten further, given a weakened outlook for the US economy and that rate cuts are likely from 2007. The latter should provide upward pressure on gold prices," said the report.
"In 2007, gold prices are forecast to gain further on investment demand, particularly as US interest rates decline. For the full year, gold prices are forecast to average $753 an ounce, a year on year increase of 19 percent," it said.
Trading was muted in the physical sector, with premiums for gold bars unchanged at zero to the spot London prices in key bullion trading centres of Hong Kong and Singapore Many dealers have also squared off positions ahead of US Independence Day holiday on Monday and Tuesday.
"We are looking at $580, but in general, my clients are not doing much here. They are basically waiting for gold to go lower before buying again," said a dealer in Singapore. "It's a lot quieter. There won't be much going on especially because of the holiday in the US the market is not sure about direction," he said.
In other precious metals, platinum dropped to $1,181/1,184 an ounce from $1,184/1,190 late in New York. Sister metal palladium fell to $302/307 an ounce from $307/312. Silver edged up to $10.22/10.32 an ounce from $10.18/10.28.
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