Gold rises on softer dollar, Syria air strikes

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(Update 3: Tues 23/09/14 17:54:19)

LONDON/SINGAPORE (Sept 23): Gold rose on Tuesday as the dollar eased after comments from a New York Federal Reserve's official that any increase in interest rates should be done cautiously, while U.S. air strikes added to global tension and hence safe haven asset demand.

New York Fed bank president William Dudley played down the importance of the various interest rate projections of Fed members released last week, which some in the market had taken as a signal of a hawkish turn.

Any increase in interest rates would hurt investment in non-interest-bearing assets such as bullion.

Spot gold rose 0.8 percent to $1,224.90 an ounce by 0943 GMT after dropping for two straight days and reaching its lowest since Jan. 2 at $1,208.36 in the previous session.

U.S. gold futures were up $7.70 to $1,225.50 an ounce.

"The comments from Dudley have allowed gold to open steady and then we have the air strikes in Syria so some geopolitical safe haven buying and the dollar is a bit weaker," Societe Generale analyst Robin Bhar said.

"But this is just a corrective bounce in a market that has headed lower, now for several days in a row ...and there is strong resistance at $1,230 and we need to see a close above there for a couple of days in a row to remove the immediate bearish tone."

The dollar fell 0.4 percent against a basket of leading currencies, having peaked to a four-year high on Monday before paring gains after Dudley cautioned that the gains could complicate the Fed's job, potentially hurting U.S. economic performance and pushing down inflation. European equities fell after euro zone data showed business activity expanded at a slightly weaker pace than expected in September.

Gold also gained some strength as buying increased after the United States and several Gulf Arab allies launched air and missile strikes on Islamic State strongholds in Syria on Tuesday, opening a new, far more complicated front in the battle against the militants.

The metal is usually seen as an insurance against political, economic and financial risk.

Investor sentiment remained, however, fragile after gold's gains made throughout the year were wiped out in the past few sessions on prospects of higher interest rates in the United States.

Holdings of SPDR Gold Trust, the top gold-backed exchange-traded fund, fell to their lowest since December 2008 at 774.65 tonnes on Monday.

Funds run by ETF Securities also saw outflows from precious metals last week due to dollar strength, said Danny Laidler, head of the firm's Australia & New Zealand operations.

"Precious metals saw the largest outflows in over a year, with silver and both long and short gold exchange-traded products seeing outflows," said Laidler, adding that $263 million was pulled out of precious metals funds last week.

"We view the current gold price as a very attractive entry point for longer-term investors."

Silver rose 1.1 percent to $17.89 an ounce, after slipping to a four-year low of $17.30 on Monday.

Platinum was up 1.4 percent at $1,340.50 an ounce and palladium gained 2.1 percent to $814.25 an ounce.