Gold settles at $1,544 on US economy worries

Gold was little changed Tuesday, settling at $1,544, as a rebound on Wall Street pulled the precious metal off a one-month high hit in the previous session on worries about the U.S. economy.

Gold has gained 5 percent in the past three weeks, boosted by disappointing U.S. economic indicators including Friday’s weak jobs data.

“With the equity prices holding nice and firm here, there is less flight-to-safety element in financial markets in general today,” said Bill O’Neill, partner of commodity investment firm LOGIC Advisors.

Investors trying to gauge whether the U.S. Federal Reserve will embark on a new round of government bond buying, or quantitative easing, were monitoring comments by Fed officials. They will turn their focus to a speech on Tuesday by Fed Chairman Ben Bernanke on the U.S. economic outlook.

Spot gold [XAU= 1541.6899 -1.16 (-0.08%) ] was last seen at about $1,544.60 an ounce, off the session high of $1,550.

U.S. gold futures [GCM1 1541.90 -1.40 (-0.09%) ] for August delivery settled down $3.20 at $1,544 an ounce, having traded in a range from $1,537.20 to $1,549.90.

Spot silver [XAG= 36.90 -0.21 (-0.57%) ] was up 1 percent at around $37.10 an ounce.

COMEX gold futures volume was slightly above 100,000 lots, almost half its 30-day average. Volume has been lackluster since last week.

Gold options trading has been quiet, with some investors selling at-the-money straddles and producers buying puts to hedge against downside risk, said COMEX gold option trader Jonathan Jossen.

A straddle allows an investor to bet on market volatility by purchasing a call and a put option at the same time, profiting when the market veers too far from a set price.

The CBOE gold volatility index, a gauge of bullion investor anxiety, dropped more than 2 percent, its third session of decline.
Analysts said soft U.S. economic data led some to expect the Fed might extend quantitative easing. The second round of quanititative easing, dubbed QE2, in which the central bank has bought $600 billion of government bonds to stimulate economic growth, is to expire by the end of June.

Gold would probably rise further if the Fed continues its easy monetary policy, but two top Fed officials Tuesday were less inclined to use a third round of QE to boost the economy.

Fed Chairman Ben Bernanke’s speech on the U.S. economic outlook will be closely watched for clues as to future policy. Bernanke will speak at 3:45 p.m. (1945 GMT) in Atlanta.

Wall Street Rebounds, Dollar Drops

Wall Street rose in lackluster trading, rebounding a day after the S&P 500 [.SPX 1284.94 -1.23 (-0.1%) ] fell to its lowest in more than two months. A weaker dollar also supported gold.

The U.S. currency slumped when an official at China’s foreign exchange regulator said Beijing should guard against risks from excessive holdings of dollar-denominated assets.

Investors expect the European Central Bank will be quicker to raise interest rates than the Federal Reserve, so the euro has risen nearly 10 percent on the dollar this year.

Precious metals consultancy GFMS meanwhile predicted gold, silver, platinum and palladium prices would retain upside potential in 2011, with negative real interest rates remaining the principal driver.

Platinum [PLCV1 1829.60 -1.10 (-0.06%) ] was up 1.4 percent at $1,830.50 an ounce, while palladium [PACV1 807.95 -1.55 (-0.19%) ] gained 2.9 percent to $806.97, with traders reporting buying of the metal for exchange-traded funds. – Reuters

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