Gold trade tepid ahead of Bernanke testimony

FRANKFURT (July 16) Gold prices were slightly higher in Europe Tuesday but lacked momentum as investors exercised caution ahead of U.S. Federal Reserve Chairman Ben Bernanke's semi-annual testimony to Congress.

Mr. Bernanke's comments will be picked apart for clues as to the future of the Federal Reserve's gold-supportive economic stimulus program. Gold prices rallied late last week after Mr. Bernanke said monetary policy would remain highly accommodative for the foreseeable future. Some investors buy gold as a hedge against the inflation that can follow easy-money policies.

"Markets are, in particular, looking for further signs of whether the central bank has plans to start scaling back on stimulus in later half of this year," said Joyce Liu, an investment analyst at Phillip Futures. "We expect speculative trading to stay mostly muted and gold prices to trade mostly sideways."

At 0828 GMT, spot gold was up 0.2% at $1,284.70 a troy ounce. Silver was 0.6% lower at $19.820 an ounce.

Physical demand for gold appears to be improving, with lower prices likely to have stirred interest in bullion, said analysts.

"The strength in China and India gold premiums, the recent move higher in gold lease rates and central bank gold buying indicate physical demand for gold may provide some support in the near term," said Deutsche Bank.

In other precious metals Tuesday, spot platinum was down 0.4% at $1,413.50 an ounce and spot palladium was 0.6% lower at $724.49 an ounce at 0827 GMT. Both platinum and palladium hit their highest levels in around a month Monday, amid concern about the supply from South Africa, where precious metal miners are in wage negotiations.

Mr. Bernanke will testify on monetary policy before the House Financial Services Committee on Wednesday and before the Senate Banking Committee on Thursday.