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Gold holds near $1,620/oz ahead of Fed testimony

LONDON - Gold prices held near $1,620 an ounce on Thursday as investors geared up for a statement from US Federal Reserve Chairman Ben Bernanke later, which will be closely watched for clues as to the future direction of US monetary policy.

Investors will scrutinise Bernanke’s testimony in front of a congressional committee for any sign of intent to further ease money supply, which would buoy gold’s appeal as an alternative store of wealth to potentially volatile currencies.

Spot gold was up 0.1 percent at $1,618.60 an ounce at 0957 GMT, while US gold futures for August delivery were down $13.90 an ounce at $1,620.30.

Prices are little changed this week after posting their biggest one-day rise in more than three years on Friday after disappointing US jobs data reignited speculation that the Fed would unleash another round of monetary easing.

“Some of the poor US data has got people thinking that there is going to be another round of quantitative easing sooner rather than later,” Citigroup analyst David Wilson said. “I suspect Bernanke will at least soften his tone towards QE.”

“I’m still optimistic for the second half of the year, on the expectations that we will see a weaker dollar through quantitative easing,” he added.

The euro hovered near one-week highs on Thursday and growth-linked currencies were supported by expectations that global policymakers will act soon to support a flagging economic recovery.

Safe-haven German Bund futures fell meanwhile, extending losses on growing expectations of further US monetary stimulus and hopes of a European policy response to Spain’s banking problems. European stocks climbed ahead of the Fed speech.

“The gold bulls are desperately hoping for further mention of some form of stimulus,” David Govett of Marex Spectron said in a note. “If some form of this is put on the table, then I expect gold will react very positively.”

“If however, as I personally believe, the Fed leaves things as they are for the time being, this will be viewed as negative and gold will fall.”

Better positioned

From a chart perspective, gold is looking better positioned for further gains after Friday’s push higher, analysts who study past price moves for clues as to the futures direction of trade said. However, it has not firmly re-established an upward trend.

“Gold closed slightly higher (on Wednesday) but failed to hold its highs of the day or to clear resistance from the downtrend at $1,632,” ScotiaMocatta said in a note.

“We remain bullish so long as gold stays above $1,600, but will need to clear resistance to bring in more buyers.”

Kazakhstan’s central bank said on Thursday it would increase the share of gold in its foreign reserves to 15 percent from about 12 percent, a day after announcing plans to cut its holdings in the ailing euro by a sixth.

Official sector gold demand has been a big support to the gold market in recent years, hitting its highest since the mid 1960s in 2011. Asian and emerging market banks have been the biggest buyers, with Russia, Mexico and Colombia all adding to reserves.

Among other precious metals, silver was down 0.4 percent at $29.26 an ounce. Silver rose more than 3 percent on Wednesday to its highest since May 8, outperforming the yellow metal.

“The gold:silver ratio dropped sharply to 55.07 yesterday, after touching 57.36 - the highest level since October 2010 - on Monday,” said UBS in a note.

“Silver’s rally yesterday was even more impressive considering that our client flows were dominated by weighty sellers, although this does not come as a big surprise as an ‘overreaction’ in silver.”

Spot platinum was flat at $1,455.99 an ounce, while spot palladium was down 0.1 percent at $622.72 an ounce.

Holdings of palladium-backed exchange-traded funds tracked by Reuters rose 1.5 percent or 27,225 ounces by close of business on Monday, their biggest one-day rise in absolute terms since Feb. 2. The inflow went into Zurich Cantonalbank’s palladium fund.