* Dollar index slides back to near 8-month low
* Silver rallies to highest since late October
* Silver at its most expensive vs gold in 3 months
* GRAPHIC-Gold/silver ratio: http://tmsnrt.rs/1qNdaSX
(Updates prices, adds comment)
By Jan Harvey
LONDON, April 12 (Reuters) - Gold rose to three-week highs
on Tuesday as the dollar sank back to a near 8-month low,
weighed down by expectations that the Federal Reserve will keep
U.S. interest rates lower for longer.
The U.S. currency has been on the back foot since Fed Chair
Janet Yellen last month doused expectations for near-term hikes
in U.S. interest rates, lifting dollar-priced assets, such as
gold.
Spot gold XAU= touched a high of $1,262.60 an ounce before
easing back to $1,258.26 by 1350 GMT, little changed from late
on Monday. U.S. gold futures GCv1 for June delivery were up
$2.60 an ounce at $1,260.60.
Silver XAG= also broke above $16 an ounce for the first
time in nearly a month, peaking at a 5-1/2 month high of $16.19
before edging back to $16.07, up 1.2 percent. The metal rose 3.6
percent on Monday, its biggest one-day rise in over six months.
The bullion prices are being driven by the poor performance
of the dollar and of stock markets, Afshin Nabavi, head of
trading at MKS in Switzerland, said, with silver driving the
market.
"Silver should get its head above $16.17 for sharp move
higher," he said. "If silver continues, gold should break above
$1,265 and eventually move towards $1,300."
The gold/silver ratio, which measures the number of silver
ounces needed to buy an ounce of gold, hit its lowest in two
months as silver outperformed gold. An ounce of gold now buys
78.2 ounces of silver, compared with 83.3 ounces in late
February.
Speculation that interest rates will stay low also helped
gold and silver in their own right. Rising rates lift the
opportunity cost of holding non-yielding assets such as bullion.
Scaled-back expectations for further monetary tightening
this year helped gold to its best quarter in nearly 30 years in
the three months to March, after the U.S. central bank raised
rates in December for the first time in nearly a decade.
"Negative yields in my opinion remain the key reason for
buying gold, and silver. That story will not go away," Saxo
Bank's head of commodities research Ole Hansen said.
"(Gold) found the expected resistance at $1,255 and it was
only when silver took off that it managed to get through. Silver
ETF holdings have risen strongly this past month while gold has
been almost flat. That could indicate some switch in focus to
silver, and the move yesterday highlighted that."
Among other precious metals, platinum XPT= was up 0.9
percent at $996.97 an ounce and palladium XPD= was up 0.3
percent at $546.66 an ounce.
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GRAPHIC-Gold/silver ratio http://tmsnrt.rs/1qNdaSX
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