London - Gold steadied on Friday as stock markets stabilised, arresting the metal's rally, though comments from a Federal Reserve official that dampened talk that the US central bank is set to curb monetary policy kept prices firmly underpinned.
Gold has been boosted this week by a drop in stocks, which in Europe posted their biggest one-day fall in nearly a year on Thursday. A rotation out of gold and into equities this year has helped drive gold prices down 17 percent.
Speculation the Fed would scale back its monetary easing programme had threatened to weigh on gold, after chairman Ben Bernanke said on Wednesday the bank could start scaling back its $85 billion in monthly bond purchases in the next few meetings.
However, St. Louis Fed President James Bullard said on Friday that US inflation would have to pick up before he voted to scale back monetary policy stimulus.
Spot gold was at $1,389.50 an ounce at 11:27 SA time, little changed from $1,390.40 late in New York on Thursday.
“On the one hand the conditions are favourable for a continued role for gold,” Mitsubishi analyst Jonathan Butler said.
“Those loose economic policies aren't coming to an end just yet, though there are some voices in favour of a more hawkish stance in the United States.”
“But overall in the near future, with equities still fairly high compared to historical levels and a risk-on mentality, it's hard to see how gold can convincingly break through $1,400 and go on to the next level.”
European shares steadied on Friday, staging a small technical bounce after their biggest one-day fall since July on Thursday, while the euro rose after an above-consensus rise in a German business climate survey suggested the outlook for Europe's largest economy may be improving.
European stocks are set to fall for the first week in five this week, taking some downward pressure off gold.
GOLD FUND REPORTS FRESH OUTFLOW
The SPDR Gold Trust, the world's largest gold-backed ETF, reported at the close of Thursday that its holdings had fallen by another 1.5 tonnes, bringing its total outflow for the week to 19.8 tonnes.
The fund is on track for its largest weekly outflow since the week ending April 26 this week. At 1,018.567 tonnes, its holdings are at their lowest in more than four years.
Macquarie said in a note on Friday that ETF liquidation this year had totalled 450 tonnes of gold.
“Given the extent of these outflows - equivalent to mine production from all of Africa and South America during the same period - that the gold price hasn't completely collapsed is testament to strong retail demand (for jewellery, coins and bars),” it said.
“If ETFs continue to leach gold - and despite the outflows over 2,200 tonnes remain - then gold's price outlook will depend on these retail buyers.”
Among other precious metals, silver was down 0.2 percent at $22.51 an ounce, tracking gold. Silver held near its cheapest versus gold in 2-1/2 years on Friday, with nearly 62 ounces of silver needed to buy an ounce of gold.
Spot platinum was down 0.1 percent at $1,456.50 an ounce, while spot palladium was down 0.2 percent at $732.97 an ounce. - Reuters