Gold prices touched their highest since mid April on Monday, on expectations that the US Federal Reserve may be set to unveil another round of monetary stimulus to combat weak growth.
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 this month in labour strife.
Bullion investors keenly awaited 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 - money printing to buy bonds - would tend to benefit gold, as 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 $1,669.20 an ounce at 0938 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,” he said. “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 was not 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 at the end of the week which could signal fresh stimulus measures.
After that, the next meeting of the policy-setting Federal Open Market Committee on Sept 12/13 will be in focus.
“At the current juncture, we cannot rule out that FOMC will decide at the September meeting to implement another round of QE,” Peter Fertig, a consultant at Quantitative Commodity Research, said. “In that case, the focus might be no longer on buying US Treasury paper but on mortgage backed securities.”
“Unless the economic data released before the FOMC meeting comes in weaker, we would not be surprised if the FOMC keeps the powder dry for a bit longer (until) after the presidential elections.”
US gold futures for December delivery were down $1.30 an ounce at $1,671.60.
INVESTOR INTEREST RISES AHEAD OF JACKSON HOLE MEETING
Speculators raised their net long positions in US gold futures and options to 140,126 lots in the week ended Aug. 21, the highest since the beginning of May, said the US Commodity Futures Trading Commission.
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 0.1 percent to $30.80, 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 0.4 percent at $1,535.93 an ounce, having risen 5.4 percent last week, its biggest one-week rise since February, after an outbreak of violence at a mine in South Africa, source of some 80 percent of the world's platinum.
Violence has spread to the eastern operations of platinum producer Lonmin , the trade union Solidarity said on Monday, raising concerns of unrest flaring again after 44 people were killed this month in labour strife.
“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 workers at the mine.
Spot palladium was down 0.9 percent at $644.50. - Reuters