Spot gold extends gains on Bernanke comments and weaker dollar

LONDON (July 19) Gold prices rose for a second consecutive session Friday, buoyed by U.S. Federal Reserve Chairman Ben Bernanke's latest comments on monetary policy and a weaker dollar.

In a testimony to Congress Thursday, Mr. Bernanke reiterated that there has been no decision on when to reduce the Fed's bond purchases, telling lawmakers "it's way too early to make any judgment." Some investors buy gold as a hedge against the inflation and currency debasement that can follow easy monetary policies.

Mr. Bernanke's "dovish tone has pleased the markets," said Austin Kiddle, a director at bullion dealer Sharps Pixley. "The Fed said that there are no preset courses for the quantitative easing program. The Fed also reminded the market that there will be a considerable gap between the end of the QE and the beginning of the rates increase."

At 0829 GMT, spot gold was up 0.3% at $1,287.53 a troy ounce. The WSJ Dollar Index, which measures the greenback against a basket of other currencies, was down 0.2% at 74.79. Since gold is priced in dollars, a weaker greenback makes the metal more affordable to other currency holders.

On a technical basis, gold's next challenge is to make a sustained break above the $1,300 an ounce resistance level, said FuturesTechs director Clive Lambert.

Having failed to convincingly breach $1,300 an ounce several times this week, "the market continues to look heavy," said Mr. Lambert.

"The bulls' task is to get above $1,300 an ounce," he said. "We'll turn short-term bullish if $1,321 an ounce if taken out."

Gold prices should take cues next week from a fresh batch of U.S. economic data, said analysts.

"With a raft of U.S. housing and manufacturing measures next week, this should give the market a little more direction," said analysts at ANZ.

The market may have to wait until the release of monthly U.S. nonfarm payroll data on Aug. 2 before gold prices break out of their recent $1,270 an ounce to $1,300 an ounce range, however, they said.

Gold investors tend to eye U.S. economic data for clues as to how long the Federal Reserve will maintain its current level of economic stimulus. As such, strong data tend to weigh on gold prices.

In other precious metals Friday, spot silver was 0.2% higher at $19.360 an ounce at 0828 GMT, spot platinum was up 0.4% at $1,415.25 an ounce and spot palladium was 0.1% lower at $742 an ounce.