Gold edges up for second session; physical demand soft

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold ticked up for a second session on Wednesday, recovering after a 3 percent drop in as many days, but gains were limited by lacklustre physical demand and lingering uncertainty over the outlook for U.S. economic stimulus.

Bullion has fallen about 20 percent this year - after 12 years of gains - on fears the U.S. Federal Reserve would begin tapering its $85 billion monthly bond purchases. Recent comments by the Fed have caused confusion as to the exact timing.

When prices fell sharply in April and June, physical demand picked up strongly. With continued volatility in prices and expectations of further declines, consumers have stayed away.

"We are seeing very slow demand as people are still bearish," said Peter Fung, head of dealing at Hong Kong's Wing Fung Precious Metals. "They are waiting for prices to fall below $1,300."

Premiums over London prices were unchanged from last week.

Spot gold rose 0.2 percent to $1,325.36 an ounce by 0302 GMT, extending slight gains from the previous day.

Prices were supported by soft U.S. data on gains in home prices and consumer confidence.

Top consumer India is expected to see a fresh bout of purchases after nearly two months as new rules on gold imports and exports were clarified.

Pent-up demand and the upcoming festival and wedding season could prompt a surge in buying but it is still not expected to be as much as the record 162 tonnes of imports in May.

China, the second biggest gold consumer, is also headed into a strong buying season but market holidays next week have kept things quiet.

Chinese markets will be closed all of next week for the National Day holiday, when weddings usually kick off.

"After the holiday, if prices are below $1,300, then we can see good demand from them," said Fung.

(Editing by Michael Urquhart)