Gold Gains on China Demand, Hopes of US Stimulus Continuing

Gold edged higher on Wednesday due to strong Chinese demand and after Federal Reserve officials allayed investor concerns that the U.S. central bank will soon exit its bullion-friendly bond purchases.

Gold has been pressured in recent weeks by fears the Fed could scale back or halt its monthly $85 billion bond purchases that have buoyed bullion's appeal as a hedge against inflation.

The metal had fallen for eight sessions out of the last nine as of Tuesday and is down nearly 18 percent for the year.

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Spot gold rose 0.2 percent to $1,377.7 an ounce by 0314 GMT, but remains not far off a two-year low of $1,321.35 reached during a sell-off last month.

Spot silver gained 0.5 percent to $22.49 an ounce, regaining more ground after dropping to 2-1/2-year lows earlier this week.

"Chinese buying is mainly pushing up gold prices," said a trader in Tokyo, adding that bullion could go up to $1,385.

Shanghai gold prices fell slightly on Wednesday but were still more than $30 higher than spot gold, indicating that demand in China - the world's No. 2 consumer after India - was strong because it would be cheaper for Chinese buyers to purchase gold from overseas.

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U.S. gold was little changed at $1,376.4 an ounce.

Bernanke Eyed

Investors are eyeing Fed Chairman Ben Bernanke's testimony in Congress about the state of the U.S. economy later in the day for clues to his stance on ending the monetary stimulus this year. The Federal Open Market Committee also releases the minutes of its April 30-May 1 meeting on Wednesday.

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New York Fed President William Dudley and St. Louis Fed chief James Bullard, who will both vote at the central bank's next scheduled meeting on June 18-19, made clear further economic progress was needed before they would support curtailing bond purchases.

Some officials are calling for an early end to the monetary easing given recent gains in the U.S. jobs sector.

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"We would suggest that Bernanke will hint at some sort of pullback, in which case, we could see a pickup in volatility and lower gold prices heading into the balance of the week," said Edward Meir, a metals analyst at brokerage INTL FCStone.

Persistent outflows from exchange-traded funds as well as technical charts suggest gold may have more downside pressure. Holdings of the largest gold-backed exchange-traded-fund, New York's SPDR Gold Trust, fell 0.8 percent on Tuesday to 1,023.08 tons, the lowest in more than four years.

(Poll: Would You Rather Own Silver or Gold?)

Source: http://www.cnbc.com/id/100756266

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