Gold rises on physical buying, outlook cautious

By Frank Tang and Clara Denina

NEW YORK/LONDON (Reuters) - Gold prices rose on Wednesday along with crude oil, with physical buyers scooping up the precious metal after a sell-off sent bullion to a two-year low.

U.S. durable goods data posted the biggest drop in seven months. Some investors viewed the data as a sign the Federal Reserve would maintain its monetary stimulus at its policy meeting next week, boosting gold's inflation-hedge appeal.

Brent crude oil jumped 1.4 percent and copper also surged. The higher industrial commodities prices lifted gold, but traders said signs of a continued U.S. economic recovery will put a lid on gold's gains.

"If recent numbers are any indication, the U.S. economy is not terrible. The Fed watchers will likely begin to talk about a later time for a tapering of the stimulus. This will in turn boost the equities markets and leave gold flat," said Carlos Santalla at commodities broker Marex Spectron.

Bullish remarks on gold by billionaire investor John Paulson also supported prices. Paulson told investors he is staying the course on gold even though there may be more short-term volatility in the price of the metal.

Spot gold rose 1 percent to $1,425.79 an ounce by 3 p.m. EDT (1900 GMT).

Gold has risen in six of the last seven sessions, after the metal sank a combined $225 on April 12 and 15 in a sell-off that surprised gold bulls.

U.S. gold futures for June delivery settled up $14.90 at $1,423.70 an ounce.

Trading volume has slowed after surging to a record high last week. Turnover was around half of its 30-day average, preliminary Reuters data showed.

ETF OUTFLOWS

Investor confidence in gold is still reeling. Outflows from exchange-traded funds showed no signs of abating, in contrast to soaring demand for coins and bars which are favored by smaller retail investors as a store of value.

The SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.68 percent to 1,097.19 tonnes on Tuesday from 1,104.71 tonnes on Monday, the lowest level since October 2009.

Premiums for gold bars soared to multi-year highs in Asia after a spate of physical buying ran down supplies, with dealers in top consumer India expecting a surge in imports this month.

U.S. physical gold demand also soared. The U.S. Mint said it has suspended sales of its one-tenth ounce American Eagle gold bullion coins as surging demand after bullion's plunge to two-year lows depleted the government's inventory.

Among other precious metals, silver rose 0.9 percent to $23.11 an ounce.

A pick-up in manufacturing activity and an improving global economy should help silver's fabrication demand recover this year, precious metals research firm Thomson Reuters GFMS said in a report.

In platinum group metals, platinum gained 0.9 percent to $1,426 an ounce, while palladium fell 1 percent to$664.97 an ounce.

(Additional reporting by Lewa Pardomuan in Singapore; Editing by Anthony Barker, David Cowell and David Gregorio)