Gold rises on physical demand

Gold rose on Friday and extended yesterdays gains as prices, which retreated from a three-week high, spurred speculation physical demand may increase. The precious metal was also supported by a weaker dollar following Bernankes testimony.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at $1 286.65 an ounce at 8:29 GMT, up 0.19% on the day. Prices ranged between daily high and low of $1 293.85 and $1 281.45 per ounce respectively. The precious metal settled 0.5% higher yesterday, erasing previous weekly losses and extending current weeks advance to 0.2% so far.

The yellow metal rose 5.1% last week, strongest weekly gain since October 2011, as Fed Chairman Ben Bernanke announced the U.S. economy still needs the central banks monetary easing program as the labor market remained fragile. The Fed chairman said on Wednesday in remarks prior to his statement that Fed’s monetary stimulus is not on a “preset course” and reiterated his opinion from last week that the U.S. economy still needs an accommodative monetary policy in the foreseeable future.

“I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course,” Bernanke said. He stated that the central bank still expects to start winding down its monetary easing program by the end of the year and bring it to an end by mid-2014, if the required recovery signs are at hand. However, he left open an option for changing that plan if the economic situation shifts towards negative.

Following Bernankes testimony, the dollar index, which tracks the greenbacks performance against a basket of six major peers, retreated from last weeks three-year high, marking a 1.87% weekly decline. This week, the U.S. currency gauge has plunged 0.38% so far. On Friday, the dollar index for September settlement traded at 82.80 at 8:24 GMT, down 0.18% on the day. Prices held in range between days high and low of 83.06 and 82.63 respectively.

The dollar trades inversely to dollar-priced commodities. Strengthening of the currency makes dollar-denominated raw materials more expensive for foreign currency holders, reducing their appeal as an alternative investment.

Huang Fulong, an analyst at CITICS Futures Co., said for Bloomberg: “Physical buying is not bad for this time of the year but may not be enough to counter ETF liquidations. Gold continues to trade in range, supported this week by Bernanke’s remarks which made investors question tapering expectations.”

This week, gold remained fairly unchanged, marking a 0.3% advance so far. According to a Bloomberg survey, traders remained bullish for a fourth week, the longest run since April. Out of twenty-nine analysts surveyed, fifteen were bullish, nine expected prices to fall next week and five were neutral. While physical demand in India, last years top consumer, declined as the country curbed gold imports due to a record-high current account deficit, signs of strengthening demand from China to Japan occurred, Barclays Plc wrote in a July 15 report.

Dan Smith, a commodities analyst at Standard Chartered in London, said for Bloomberg: “Bernanke is very mindful of the fact that the recovery can falter quite easily. Things are going to remain quite volatile. As long as rates don’t go up too much and quantitative easing is eased back slowly, then I don’t see any reason why gold can’t go higher.”

Elsewhere on the precious metals market, silver and palladium fell, while platinum surged. Silver for September delivery traded at $19.328 an ounce at 8:27 GMT, down 0.31% on the day. Prices ranged between $19.587 and $19.290. Meanwhile, platinum October futures gained 0.44% on the day, trading at $1 421.05 per troy ounce. The contract held in range between days high and low of $1 429.15 and $1 413.10 respectively. Palladium for September delivery stood at $743.50 an ounce at 8:27 GMT, down 0.54% on the day. Prices varied between high and low of $748.10 and $742.90 an ounce respectively.