Gold holds near 18-week high, focus on Fed

Gold firmed on Wednesday and held near its highest level in more than four months on hopes that U.S. Federal Reserve Chairman Ben Bernanke may announce further stimulus measures for the economy at a speech later this week.

Bernanke is set to keep markets guessing about the timing of another round of bond purchases when he speaks on Friday in Jackson Hole, Wyoming, but he is likely to sustain expectations for action of some kind next month.

The Fed, which has kept rates near zero since December 2008, has promised to keep them there until at least late 2014 to nurture a weak recovery, but previous rounds of asset purchases have burnished gold's safe-haven appeal.

 

Gold rose $1.16 to $1,667.69 an ounce by 0614 GMT, within sight of a 4-1/2 month high of $1,676.45 hit on Monday. A report showing U.S. consumer confidence deteriorated in August to the lowest in nine months boosted gold.

Silver, which often tracks gold, was hardly changed at $30.85 per ounce and not far from Monday's three-month high.

"We see near-term risks of a reversal if Jackson Hole does not deliver what the market is hoping for and gold could challenge $1,650 support and possibly $1,630," said Nick Trevethan, senior metals strategist at ANZ in Singapore.

"In the run up to the weekend we do not expect either market to show any clear direction, with silver likely to trade between $30.00 and $31.40, and gold to move between $1,650 and $1,676," he added.

Gold rallied to around $1,790 in February, the highest level so far in 2012, after the Fed at the time said it would keep interest rates near zero until at least the end of 2014. Prices have shed about 7 percent since then as there have been no signs of further easing.

U.S. gold futures for December delivery rose $1.20 to $1,670.90 an ounce.

The euro remained firm while Asian shares steadied as investors awaited Bernanke's Friday speech for signs of whether the bank would opt for more monetary stimulus and a European Central Bank policy meeting next week.

In the physical market, dealers expected to see buying on dips from India during the festival season. Retail gold demand traditionally gains pace from August, when the festival and wedding seasons start, culminating with Diwali, the Hindu festival of light.

"There's a bit of physical demand, but I think the market is flooded with gold bars. I've lowered my premiums to 30 to 50 cents from 50 to 70 cents last week," said a dealer in Singapore.

"There had been some selling from Indonesia. We haven't seen much buying from India, but they are preparing for the high season. If prices go down they will take the opportunity to buy."

Another dealer said higher gold prices also prompted selling from holders in Southeast Asia. "People have been selling gold and we are absorbing those gold bars. My premiums are also 30 to 50 cents," he said.

Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust GLD, rose 0.23 percent on Tuesday from Monday, while that of the largest silver-backed ETF, New York's iShares Silver Trust SLV, fell 0.12 percent for the same period.