Gold prices turned higher on Wednesday, gaining support from bets that central banks would unveil more bullion-friendly stimulus measures this year, with a recovery in stock markets also taking some downward pressure off the metal. Speculation that the Fed may unveil another round of stimulus measures and that the European Central Bank is set to take action on the euro zone debt crisis has kept gold firmly underpinned above $1,600 an ounce this week, despite a bout of dollar strength.
A better outlook for the euro zone would support the euro and consequently gold, while another round of quantitative easing (QE) to boost US growth would probably undermine the dollar while boosting liquidity, keeping interest rates low and stoking inflation fears.
Spot gold recovered from a session low of $1,602.94 an ounce to rise 0.2 percent at $1,613.40 an ounce by 1422 GMT, while US gold futures for December delivery were up $3.40 an ounce at $1,616.20.
While the Fed disappointed some investors last week when it failed to give clear guidance on the timing of QE, they remain broadly positive towards the metal as long as the prospect is still on the table. "I think investors inherently want to see it higher, and are worried about missing the boat," Saxo Bank vice president Ole Hansen said. "ETF flows have been supportive in recent days and support has been firm despite the reduced chance of US quantitative easing."
"Liquidity is at a premium this time of year and it does not take much to drive (the market)," he added. The euro remained under pressure, keeping a lid on gold's gains, down 0.5 percent against the dollar after German data showed imports and exports falling. European shares steadied, while safe-haven German Bund futures rebounded and ten-year Spanish government bond yields briefly touched the 7 percent danger level as speculation grew that it may take time until Spain asks for a bailout.
Prices remain in a narrow range as investors await clearer signals on central bank policy on both sides of the Atlantic. Gold demand in major consumer India was soft at the start of the festival season, meanwhile, with rural buyers staying on the sidelines, preferring to hold on to their cash at a time when deficient monsoon rains threaten to dent their incomes.
The rural population accounts for 60 percent of the gold demand from India. Gold buying has already been hit in India by rupee weakness, which keeps local prices high, and a hike in import taxes aimed at cutting the trade deficit. In China, which is currently vying with India as the world's top buyer of gold, the trading volume on the popular gold spot deferred contract on the Shanghai Gold Exchange stood at 11,468 contracts on Tuesday, after double-counting, down nearly 30 percent from July's average daily volume.
In August 2011, daily trading volume was 35,086 contracts. Silver was flat at $28.06 an ounce, while of the platinum group metals, platinum was down 0.1 percent at $1,401.49 an ounce, while palladium was up 0.7 percent at $584 an ounce.
Aquarius Platinum, the fourth-largest miner of the white metal, reported a $189 million full-year loss on Wednesday, hurt by lower production, which fell 14 percent to 411,398 PGM ounces. The news failed to benefit platinum prices. The gold/platinum ratio, which measures the number of platinum ounces needed to buy an ounce of gold, held at 1.15 on Wednesday, close to its highest since 1985.