Gold prices steadied on Tuesday as a fall in the euro pulled it from two-week highs earlier in the day on the back of comments from the Federal Reserve, which stoked expectations US interest rates will remain at rock-bottom levels. The metal held above the 100- and 200-day moving averages it broke through on Monday after the Federal Reserve signalled it would keep interest rates low, reassuring buyers the opportunity cost of holding bullion would stay depressed.
Spot gold was at $1,690.66 an ounce at 1439 GMT against $1,691.74 late on Monday, after earlier hitting a two-week peak at $1,696.20. Fed Chairman Ben Bernanke said on Monday the US economy needed to grow more quickly to cut the unemployment rate. While he did not directly indicate the Fed was set to begin another round of bond purchases, he said a continuation of accommodative policies was needed to support faster growth. "Certainly monetary accommodation remains very much a focus for the Fed," Deutsche Bank analyst Daniel Brebner said.
"I think the reminder that the market got yesterday is keeping gold prices higher," he added. "Our economists believe that the market has been too aggressive in pricing in Fed rate hikes in 2013, while the Fed is more likely to push the hikes out to 2014 as indicated by the speech," said Barclays Capital in a note. "We believe low interest rates and longer-term inflationary pressures should remain supportive for gold prices."
Gains in other asset classes helped to underpin gold even as the euro surrendered some early gains against the dollar. The precious metal tends to benefit from weakness in the dollar, which makes it cheaper for holders of other currencies. US gold futures for April delivery were up $3.10 an ounce at $1,688.70. Options expiry is due on COMEX later in the day, with most call and put options concentrated around the $1,700 an ounce level.
Gold exchange-traded funds, which issue securities backed by physical metal, reported inflows on Monday. Holdings of the largest, New York's SPDR Gold Trust, increased by around 6 tonnes, reversing some of the previous week's 10 tonne drop.
Demand for the yellow metal in major consumer India remained subdued, however, as a strike continued among jewellers in protest at a government import levy. "There is valid concern over Indian gold demand, which may decline on the back of higher domestic taxes on the gold industry," said Standard Bank in a note. "Indian buying has been notably weak as the strike by jewellers drags on for the 11th day today." Silver was up 0.2 percent at $32.88 an ounce. Spot platinum was up 1 percent at $1,658.24 an ounce, while spot palladium edged down 0.2 percent to $661.97.
Platinum maintained an historically unusual discount to gold as buyers worried about demand for the white metal, which is chiefly used in autocatalysts. Platinum prices are up more than 18 percent this year after a poor performance in 2011 but have struggled to maintain traction as worries persist over growth in the euro zone, a major market for platinum-heavy diesel autocatalysts.
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