BENGALURU, Nov 29 (Reuters) - Gold rose on Thursday after Federal Reserve Chair Jerome Powell's comments boosted perceptions the central bank would go slow on interest rate hikes next year, while palladium was trading at record levels due to a shortage of supply.
Spot gold gained 0.5 percent to $1,226.91 per ounce at 1305 GMT. U.S. gold futures were up 0.2 percent at $1,226.50 per ounce.
"The hint from the Fed that they are closer to ending the current rate hike cycle caught the markets somewhat by surprise. We saw a good lift up in the gold price close to the highs we've seen over the past few weeks," Mitsubishi analyst Jonathan Butler said.
"Treasury yields and the dollar dropped back, and that was quite supportive of gold," he said.
Gold tends to gain when rate hike expectations recede because lower rates reduce the opportunity cost of holding non-yielding bullion. Lower interest rates also tend to weigh on U.S. yields and the dollar, in which gold is priced.
Gold prices jumped as much as 1 percent after Powell's speech on Wednesday, recovering from a two-week low of $1,210.65 hit earlier.
But gains in the precious metal were limited as Powell's dovish tone helped revive risk appetite, driving world stocks to their highest in more than two weeks, while the dollar and bond yields fell.
Powell said the central bank's policy rate is now "just below" estimates of a level that neither brakes nor boosts a healthy U.S. economy.
"Gold was revitalized by Powell's speech and his dovish tone ... Despite this move, we are still in a lateral phase. We could have a first positive signal if bullion surpasses $1,235, paving the way for further rallies," ActivTrades chief analyst Carlo Alberto De Casa wrote in a note.
Investors are now awaiting the release of the minutes of the U.S. central bank's Nov. 7-8 policy meeting at 1900 GMT for further clues on the Fed's monetary tightening path.
In addition to that they are awaiting the G20 summit in Buenos Aires later this week, where U.S. President Donald Trump and Chinese President Xi Jinping are due to hold trade talks.
Palladium fell 0.6 percent to $1,176.90 per ounce, after earlier hitting a record high of $1,186.50.
"This is a very fundamental story of demand outstripping the supply. It's been six or seven years of sustained market deficit, which has kept the market exceedingly tight," Mitsubishi's Butler said.
"As we see it strive towards new highs right now, there is clearly some potential for a short-term pull back and profit-taking from here," he said.
Spot silver was up 0.1 percent to $14.33 per ounce. Platinum rose 0.5 percent to $825.20 per ounce after falling to a seven-week low of $809.50 on Wednesday. (Reporting by Swati Verma in Bengaluru Editing by Edmund Blair and Adrian Croft)