Gold rebounded early on Wednesday after two consecutive days of sharp losses, but a strong US economic outlook and fears that the Federal Reserve could raise US interest rates limited gains for the safe haven. Traders said that bottom-picking after the metal's biggest two-day drop since October underpinned prices. Bullion was also boosted by technical buying after it found support at its 50-day moving average near $1,290 an ounce for a second straight day.
"We are seeing some bargain hunting after the losses of the past two days," MKS SA head of trading Afshin Nabavi said. Gold's rally faded after data showed US manufacturing output rose at its fastest pace in more than two years in the second quarter, suggesting the economy was regaining enough momentum to lift growth throughout the year.
Spot gold rose 0.2 percent to $1,296.94 an ounce by 2:16 pm EDT (1816 GMT), after losing 3.3 percent in the last two sessions, its biggest two-day loss since October 1. US gold futures for August delivery settled up $2.70 at $1,299.80 an ounce, with trading volume about 20 percent below its 30-day average, preliminary Reuters data showed.
The metal broke below $1,300 for the first time since June 19 on Tuesday after a Fed report showed its balance sheet would top out at $4.5 trillion when its bond-buying program ends in October - a timeline consistent with what Fed policymakers had said previously. Gold's gains also fizzled after Dallas Fed President Richard Fisher said on Wednesday the central bank is "likely" to start raising interest rates gradually early next year and should begin shrinking its massive balance sheet in October to signal its confidence in the recovery.
Market participants now digested news after the London Gold Market Fixing Ltd said it is seeking a third party to take over the administration of a century-old global price benchmark known as the "fix," possibly signalling a move to an electronic platform. Among other precious metals, platinum was up 0.2 percent at $1,478.50 an ounce, while palladium rose 1 percent to $871.83 an ounce and silver gained 0.1 percent to $20.67 an ounce.
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