Gold rises on Fed stimulus extension hopes

By Frank Tang and Clara Denina

NEW YORK/LONDON (Reuters) - Gold ended slightly higher in choppy trade on Wednesday after the minutes of the Federal Reserve's June meeting showed many officials wanted more reassurance the job market was on solid ground before withdrawing economic stimulus.

The metal rose as much as 1.3 percent, extending its gain to a third day. Bullion failed to maintain earlier gains despite the usual bullish drivers of a tumbling dollar and rallying U.S. crude futures.

Gold turned higher after the minutes of the Fed's latest policy meeting suggested that it might not be as sure a bet that the U.S. central bank will scale back its asset buying any time soon.

Prior to Wednesday, financial markets had largely reached a consensus on September as the probable start of a reduction in the pace of the U.S. central bank's $85 billion in monthly bond purchases.

"As gold is reacting positively after the Fed minutes, it's evident that QE is going to extend for a considerable period of time," said Jeffrey Sica, chief investment officer of Sica Wealth, which has over $1 billion assets under management.

Spot gold was up 0.3 percent to $1,252.63 an ounce by 3:47 PM EDT (1947 GMT), having set a one-week high of $1,265.01.

U.S. Comex gold futures for August delivery settled up $1.50 to $1,247.40 prior to the Fed minutes. Volume was at 192,000 lots, about 5 percent below its 30-day average, preliminary Reuters data showed.

A downgrade of Italy's sovereign credit rating by ratings agency Standard & Poor's on Tuesday underpinned some safe-haven demand, traders said.

Disappointing performance of U.S. 10-year Treasuries prices, or rising bond yields, also weighed on gold, said George Gero, vice president of RBC Capital Markets.

As gold pays no interest, the rise in returns from U.S. bonds is seen as negative for the metal.

CHINA DATA

Gold prices failed to rally further partly because disappointing Chinese trade data overnight stoked fears of a slowdown in demand for commodities in the world's second-biggest economy.

China has been a big support for gold prices, which have lost a quarter of their value this year.

Investment demand continued to slump.

Holdings in SPDR Gold Trust, the largest gold-backed exchange-traded funds declined a further 7.2 tonnes on Tuesday, adding to the previous session's 15-tonne drop. The fund is already on track for its biggest weekly outflow in seven weeks.

Among other precious metals, silver edged down 0.4 percent to $19.15 an ounce. Platinum eased 0.2 percent to $1,361.24 an ounce and palladium climbed 2 percent to a three-week high of $710.25, having earlier hit a three-week high at $713 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by James Jukwey, David Evans, Theodore d'Afflisio and James Dalgleish)