Gold prices hit their highest since mid-April on Monday, buoyed by speculation that the US Federal Reserve may be set to unveil another round of monetary stimulus, but then steadied on caution ahead of a key central bankers' meeting later this week. In platinum, world No.3 producer Lonmin reported violence spreading to more of its operations, raising concerns of deadly unrest flaring again after 44 people were killed amid labour strife this month.
Bullion investors are keenly awaiting a gathering of central bankers at Jackson Hole, Wyoming, beginning on Friday. Previous meetings have signalled that more policy easing is in the pipeline. In a letter seen by Reuters on Friday, Federal Reserve Chairman Ben Bernanke told a Congressional oversight panel that the Fed has room to deliver additional stimulus measures. While recent US data has been mixed, economists remain concerned about unemployment and the pace of the recovery.
Further stimulus in the form of quantitative easing - the printing of new money to buy bonds - would tend to benefit gold because it would boost liquidity while keeping long-term interest rates low and stoking fears over the potential for inflation. Spot gold hit a 4-1/2 month high at $1,676.45 an ounce before steadying in holiday-thinned trade to $1,668.91 an ounce at 1337 GMT, versus $1,669.74 on Friday. The metal rose 3.4 percent last week, its biggest one-week rise since late January.
"Volumes are rather thin so far this morning, with London out for Bank Holiday," Alexander Zumpfe, a trader at precious metals house Heraeus, said. "Gold is on the edge to trade through the upper side of its four-month range. It needs a more convincing break of the $1,675 level before a test of $1,700 is back on the cards. "With further monetary easing possible, the environment remains supportive. However, after last week's relatively steep run-up, a failure of a break through $1,675 might end up in some profit-taking before the metal continues trading higher."
On the currency markets, the euro pared early losses against the dollar to rise 0.1 percent after an influential survey of German business sentiment proved not to be as bad as some had expected. A softer dollar tends to support gold. The looming recession across the euro zone kept European shares and the single currency under pressure. Moves were capped, however, ahead of the Jackson Hole meeting and possible stimulus measures.
After that, the next meeting of the policy-setting Federal Open Market Committee (FOMC) on September 12-13 will be in focus. US gold futures for December delivery were down $1.10 an ounce at $1,671.70. Speculators raised their net long positions in US gold futures and options to 140,126 lots in the week ended August 21, the highest since the beginning of May, the US Commodity Futures Trading Commission said.
"Despite the improvement, overall gold positioning remains weak ... leaving the metal vulnerable to temporary sell-offs," Standard Bank said in a note. "With market hopes pinned on Bernanke's speech this Friday, the threat this week is particularly acute. "This week's conference is not the forum for Bernanke to make any strong commitment to easing. Therefore, as usual, the market's reaction will be largely based on reading between the lines - leaving room for all manner of interpretations and short-term reactions." Investors also piled into physically backed exchange-traded gold funds, lifting the holdings of gold ETFs tracked by Reuters to a historical high above 71.4 million ounces.
Spot silver hit $31.26, the highest in nearly four months, and was later up 0.6 percent at $30.95, building on a weekly rise of nearly 10 percent, its largest since October. Holdings of silver ETFs rose to 504.4 million ounces, the highest level since last May. Spot platinum was down 0.2 percent at $1,538.49 an ounce, having risen 5.4 percent last week, its biggest one-week rise since February. The price has risen after the violence in South Africa, source of 80 percent of the world's platinum.
The labour unrest has now spread to Lonmin's eastern operations, the trade union Solidarity said on Monday. "Levels of intimidation are very high. Only 17 percent of employees arrived for work, compared to Saturday's 57 percent," Gideon du Plessis, Solidarity's deputy general secretary, told Reuters. Solidarity represents skilled mineworkers. Spot palladium was down 0.6 percent at $644.47.