NEW YORK/LONDON: Gold rose on Thursday, as gains in crude oil prices and short-covering triggered a rebound rally from the previous day's losses after the Federal Reserve chief said the US central bank still expects to start scaling back its monetary stimulus later this year.
Investors focused on bullion's inflation-hedge appeal as US crude oil rose to a 16-month high on encouraging US job market and manufacturing data, partially recovering from gold's 1.3 percent drop on Wednesday.
In his second day of congressional testimony, Fed Chairman Ben Bernanke affirmed that the Fed would likely reduce its program of buying $85 billion of bonds a month later in 2013 and halt it altogether by mid-2014, and he left open the option of changing stimulus exit plans if the economic outlook grew worse.
"A sustained positive move in gold likely requires a significant deterioration in US economic prospects, which may steady the Fed's hand from removal of monetary accommodation," said Robert Haworth, senior investment strategist at US Bank Wealth Management.
Otherwise, gold is likely to fall as continued liquidation by speculators overwhelms strong physical demand from China and India, Haworth said.
Spot gold rose 0.8 percent to $1,285.21 by 2:24 p.m. EDT (1824 GMT).
US gold futures for August delivery settled up $6.70 to $1,284.20 an ounce, with trading volume about 30 percent below its 30-day average, preliminary Reuters data showed.
Gold held gains after government data showed US jobless claims fell and factory activity picked up in the Mid-Atlantic region.
The data could reinforce the view that the Fed will start winding down its massive stimulus program as early as September.
Bullion has slipped more than 20 percent this year, losing its safe-haven appeal after the Fed earlier this year signalled it would look to rein in its monetary stimulus.
SPDR HOLDINGS FALL
As a gauge of investor sentiment, holdings of the world's largest gold-backed ETF SPDR Gold Trust fell 1.5 tonnes to 937.57 tonnes on Wednesday. The fund has seen outflows of around 370 tonnes, or about $17 billion at current prices, so far this year.
Gold's recent weakness has attracted buying in the physical sector, but demand from top consumer India has been muted after the government raised its import duty and stopped consignment imports, cutting imports by 81 percent in June.
Silver rose 0.9 percent to $19.43 an ounce. Among platinum group metals (PGMs), platinum gained 0.5 percent to $1,411.59 an ounce, while palladium rose 1.4 percent to $742.97 an ounce.
Investors now digest news General Motors Co is preparing to put its full-size pickup trucks on a severe diet to meet future US fuel economy standards and stay competitive with rivals. Lighter trucks with lower fuel consumption are likely to require less PGMs as autocatalyst.
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