Gold heads for 2nd week of gains on Fed reassurance
LONDON (July 19) Gold rose 1 percent on Friday and headed for a second weekly gain, helped by a retreat in the dollar and as investors' fears eased that the U.S. Federal Reserve would withdraw monetary stimulus soon.
Fed Chairman Ben Bernanke eased some market nerves this week by telling the U.S. Congress that the central bank's plans to taper asset purchases later this year were not set in stone and depended on the strength of the economy.
Ultra-loose monetary policy, which has maintained pressure on long-term interest rates while stoking fears over inflation, has been a major factor driving gold higher in recent years.
Spot gold was up 0.8 percent to $1,294.89 at 1413 GMT, having earlier touched a session high at $1,297.34. U.S. gold futures for August delivery were up $10.50 at $1,294.70 an ounce.
"Bernanke told the Senate Banking Committee yesterday it was 'way too early to make any judgment' as to whether tapering will start in September," Afshin Nabavi, head of trading at MKS in Switzerland, said. "I take that as positive for gold."
"Only a break of $1,305 should get the market bullish," he said. "But I think with the physical demand we are seeing we ought to see higher after September."
Bullion has slipped more than 20 percent this year after the Fed hinted it was set to rein in its $85 billion monthly bond-buying programme later this year and halt stimulus altogether by mid-2014.
The market regained some confidence after a series of comments from the Fed chief this month, briefly touching a three-week high of $1,300.61 on Wednesday.
The dollar gave back Thursday's gains, while the benchmark 10-year U.S. Treasury yield also eased, making non-interest bearing assets such as gold more attractive.
ETF OUTFLOWS SLOW
As a gauge of investor interest, outflows from the world's largest gold-backed exchange-traded fund SPDR Gold Trust, have slowed to 3.9 tonnes this week from 22.9 tonnes last week.
Investors said earlier this week they were awaiting evidence that heavy selling of ETFs -- holdings of the SPDR alone are down 416 tonnes this year -- was slackening before re-entering the market.
The SPDR's holdings fell by nearly 1 tonne to 935.17 tonnes on Thursday, the lowest since early 2009.
China's first two newly launched gold exchange-traded funds have raised a total of 1.6 billion yuan ($261 million) in their initial funding round, coming in below expectations due to sliding gold prices and a recent credit scare.
"Chinese buyers may have held back somewhat in anticipation of even lower gold prices," Commerzbank said in a note.
Rssia's central bank posted data showing it did not add gold to its reserves for the first time in nine months in June, when bullion prices fell by more than 10 percent to their lowest in nearly three years.
Russia has been the biggest gold buyer in the official sector in the past decade. A shift by central banks from major sellers of bullion to net buyers has been a major support to the gold market in recent years.
