Gold ended flat on Tuesday and showed little reaction to US Federal Reserve Chairman Ben Bernanke's comments acknowledging a slowdown in the economy but offering no suggestion on further monetary stimulus to support growth.
Gold has gained 5% in the past three weeks, boosted by disappointing US economic indicators including Friday's weak jobs data. Investors have been trying to gauge whether the US Federal Reserve will embark on a new round of government bond buying, or quantitative easing.
"Everybody was looking for some concrete proposal but his speech is pretty vague right now. That's one of the reasons why the gold market was looking tired and the equities came off," said Bruce Dunn, vice president of trading at bullion dealer Auramet.
Spot gold inched up 64 cents to USD 1,543.69 an ounce at 3:51 p.m. EDT (1951 GMT), off the session high of USD 1,550.
US gold futures for August delivery settled down USD 3.20 at $1,544 an ounce, ranging from USD 1,537.20 to USD 1,549.90.
COMEX gold futures volume was slightly above 100,000 lots, almost half its 30-day average. Volume has been lacklustre since last week.
Silver was up 0.7% at USD 36.98 an ounce.
"US economic growth so far this year looks to have been somewhat slower than expected," Bernanke said in remarks prepared for delivery at a banking conference in Atlanta.
"A number of indicators also suggest some loss in momentum in labor markets in recent weeks," he added.
Analysts said soft US economic data led some to expect the Fed might extend quantitative easing. The second round of quantitative easing, dubbed QE2, in which the central bank has bought USD 600 billion of government bonds to stimulate economic growth, is to expire by the end of June.
Gold would probably rise further if the Fed continues its easy monetary policy, but two top Fed officials on Tuesday were less inclined to use a third round of QE to boost the economy.
OPTIONS VOLATILITY EASES
Gold options trading has been quiet, with some investors selling at-the-money straddles and producers buying puts to hedge against downside risk, said COMEX gold option trader Jonathan Jossen.
A straddle allows an investor to bet on market volatility by purchasing a call and a put option at the same time, profiting when the market veers too far from a set price.
The CBOE gold volatility index, a gauge of bullion investor anxiety, dropped more than 2%, its third session of decline.
Wall Street fell for a fifth day on Tuesday after Bernanke's comment, but a weaker dollar supported gold.
The US currency slumped when an official at China's foreign exchange regulator said Beijing should guard against risks from excessive holdings of dollar-denominated assets.
Investors expect the European Central Bank will be quicker to raise interest rates than the Federal Reserve, so the euro has risen nearly 10% on the dollar this year.
Precious metals consultancy GFMS meanwhile predicted gold, silver, platinum and palladium prices would retain upside potential in 2011, with negative real interest rates remaining the principal driver.
Platinum was up 1.3% at USD 1,828 an ounce. Palladium gained 2.9% to USD 806.47, with traders reporting buying of the metal for exchange-traded funds.
Prices at 3:53 p.m. EDT (1953 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold 1544.00 -3.20 -0.2% 8.6%
US silver 37.046 0.264 0.0% 19.7%
US platinum 1830.70 9.50 0.5% 3.0%
US palladium 807.80 10.75 1.3% 0.6%
Gold 1543.95 0.90 0.1% 8.8%
Silver 37.04 0.31 0.8% 20.0%
Platinum 1828.00 22.70 1.3% 3.4%
Palladium 806.47 22.47 2.9% 0.9%
Gold Fix 1545.00 -3.40 -0.2% 9.6%
Silver Fix 37.41 54.00 1.4% 22.1%
Platinum Fix 1824.00 4.00 0.2% 5.4%
Palladium Fix 804.00 8.00 1.0% 1.6%