Gold firmed on Thursday on speculation that central banks may be set to launch further bullion-friendly monetary stimulus measures to boost growth, though mixed US data that dampened expectations for imminent Federal Reserve action kept prices in a range.
The precious metal recovered early losses as the dollar retreated from a two-week high against a currency basket, relieving downward pressure on prices.
They broke above $1,600 an ounce in late July on talk that both the Federal Reserve and the European Central Bank would take steps to stimulate their economies.
Further monetary easing would benefit gold by boosting liquidity and maintaining pressure on long-term interest rates, keeping the opportunity cost of holding bullion at rock bottom, as well as fuelling inflation fears and weighing on the dollar.
Spot gold was up 0.1 percent at $1,603.84 an ounce at 11:24 SA time, while US gold futures for December delivery were flat at $1,606.60 an ounce.
“My general view is that for the time being major central banks will let go of the mandate of price stability in favour of spurring growth figures,” LGT Capital Management analyst Bayram Dincer said.
“This means that the central banks in an explicit or implicit inflation targeting regime will try to anchor inflation expectations around 3.0 percent,” he said. “This change would be gold price supportive.”
Data on Wednesday showed US industrial output rose in July at its fastest pace since April, a day after strong US retail sales figures that dampened expectations the Fed will launch another round of bond-buying, or quantitative easing.
However, softer-than-expected inflation data reassured investors that price pressures would not prevent the Fed from launching more QE if a more negative view of growth emerges.
“A downward surprise in US inflation numbers is spurring hopes for more monetary stimulus, which would be positive for gold,” Credit Suisse said in a report on Thursday.
“Nevertheless, investment interest remains thin and technical momentum is only neutral. As a result, we think gold could recover slightly but will probably remain caught in the familiar $1,530-1,640 trading range.”
PHYSICAL DEMAND SOFT IN Q2
A closely watched report from the World Gold Council showed on Thursday that demand for physical gold from jewellers and investors fell in the second quarter to its lowest level since the first three months of 2010.
Gold consumption fell 7 percent or nearly 76 tonnes to 990 tonnes as a drop in buying in major consumers India and China outweighed a record quarter for central bank purchases.
Gold purchases in Asia slowed after prices rebounded to more than $1,600 an ounce on Thursday, as traders await the next drop in prices and demand remains under pressure as economic uncertainties weigh on consumer sentiment.
On the supply side of the market, Canadian mining major Barrick Gold is in talks to sell all or part of its 74 percent stake in African Barrick Gold to China's largest gold producer, just two years after the underperforming Tanzanian assets were spun off.
Among other precious metals, silver was up 0.3 percent at $27.88 an ounce, while spot platinum was up 0.3 percent at $1,394.24 an ounce and spot palladium was up 0.3 percent at $573.50 an ounce.
South African police ordered thousands of illegally striking miners armed with machetes and sticks to lay down their weapons and leave Lonmin's Marikana platinum mine on Thursday or face an assault by security forces.
Number three platinum miner Lonmin was forced to cease mining at its South African operations after inter-union violence broke out there. Ten people, including two policemen, have died in nearly a week of fighting between rival worker factions at the Marikana mine. - Reuters