Gold extends rebound above five-week low, key technical level

By Marcy Nicholson and Zandi Shabalala

NEW YORK/LONDON (Reuters) - Gold rose on Thursday, rising quietly above the prior session's five-week low as the dollar steadied and the 200-day moving average provided short-term support below the market.

Spot gold (XAU=) was up 0.3 percent at $1,249.17 an ounce by 3:04 p.m EDT (1904 GMT). It had added 0.3 percent in the previous session after touching a five-week low of $1,240.75.

U.S. gold futures (GCcv1) for August delivery settled up 0.3 percent at $1,249.40.

"Today is strictly a bounce day. You can't say this is anything more than a consolidation in gold," said Bill O'Neill, co-founder of LOGIC Advisors, adding that a rise above $1,260 could attract technical buying and higher prices.

World stock markets edged higher, buoyed by a modest rebound in oil prices after the commodity hit 10-month lows, while the U.S. yield curve managed to stall its recent flattening. [MKTS/GLOB]

"The uncontrolled oil price spill in the futures markets may have seen some traders pushing the risk aversion button and buying gold," said Jeffrey Halley, senior market analyst at OANDA.

"The primary driver appears to be the flattening of the longer-dated U.S. Treasury curve," he said.

The U.S. Treasury yield curve flattened to almost 10-year lows on Wednesday as investors evaluated the impact of hawkish Federal Reserve policy on the economy even as inflation measures are deteriorating. [US/]

Gold is highly sensitive to rising rates and yields, which increase the opportunity cost of holding non-yielding assets such as bullion while boosting the dollar, in which it is priced.

"The U.S. is on a solid growth path and on cruising speed, which justifies higher interest rates and also a stronger U.S dollar. This is something we believe will cause some headwinds for gold," Julius Baer's Menke said.

In technicals, Mitsubishi analyst John Butler said any significant break on either side of $1,250 would be important for the price.

"We have been testing the uptrend that prevailed at the end of last year at $1,240 and we have bounced off that level yesterday," Butler said.

The U.S. dollar index (.DXY), which measures the greenback against a basket of six currencies, was little changed.

Holdings in SPDR Gold Trust (GLD), the world's largest gold-backed exchange-traded fund, rose 0.04 percent to 853.98 tonnes on Wednesday.

Among other precious metals, silver (XAG=) gained 0.9 percent to $16.57 per ounce. Platinum (XPT=) touched its highest in a week during the session and was up 0.1 percent at $924.40, while palladium (XPD=) eased 0.4 percent at $884.60.

(Additional reporting by Vijaykumar Vedala in Bengaluru; Editing by David Evans and Lisa Shumaker)