Gold up as Fed minutes cool rate hike prospects, weigh on dollar

By Marcy Nicholson and Clara Denina

NEW YORK/LONDON (Reuters) - Gold rose on Thursday, buoyed by a weaker dollar after minutes from the U.S. Federal Reserve's July meeting showed policymakers were divided over whether to raise interest rates soon.

Members of the Fed's rate-setting Federal Open Market Committee were generally upbeat about the U.S. economy and labour market, but several said any slowdown in future hiring would augur against a near-term hike.

"The markets have decided that the Fed took a rather dovish tone this time," said George Milling-Stanley, Head of Gold Strategy at State Street Global Advisors. "I think that's why the dollar is down and why gold is up."

Spot gold (XAU=) was up 0.3 percent at $1,351.98 an ounce by 2:39 p.m. EDT (1839 GMT), on track for a fourth straight day of gains.

U.S. gold (GCcv1) settled up 0.6 percent at $1,357.20 per ounce.

"The market has been trying to read into whether Fed official comments for a September rate hike will be repeated by Janet Yellen next week, but there is no clarity yet," Saxo Bank senior manager Ole Hansen said.

"As a result, gold is supported, but struggling to break above $1,357 - the next technical resistance level," he added.

The dollar eased 0.6 percent against a basket of six major currencies (.DXY), after plunging to its lowest in over seven weeks.

A weaker dollar makes gold cheaper for holders of other currencies.

Reports showed the number of Americans filing for unemployment benefits fell more than expected last week while manufacturing activity in the U.S. Mid-Atlantic region saw a mild improvement this month.

New York Fed President William Dudley said strong recent U.S. job growth and a long-awaited return of middle-wage employment are two positive signs for the labour market, appearing to reinforce his more confident message on a possible interest rate hike.

Gold is sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets, such as bullion.

Holdings of SPDR Gold Trust (GLD), the world's largest gold-backed exchange-traded fund, fell 0.46 percent to 957.78 tonnes on Wednesday.

The Chicago Mercantile Exchange on Wednesday lowered COMEX 100 Gold Futures (GC) maintenance margins for speculators by 10 percent to $5,400 per contract from $6,000 for August and September 2016.

Silver (XAG=) was up 0.6 percent at $19.79 an ounce, after touching a more than three-week low on Wednesday.

Platinum (XPT=) rose 1.6 percent at $1,130.50, after hitting a three-week low of $1,099.74 in the previous session, while palladium (XPD=) was up 3 percent at $712.70.

(Additional reporting by Nallur Sethuraman in Bengaluru; editing by Adrian Croft and G Crosse)