Gold futures extend gains to 2-week high on Fed easing hopes

Forexpros - Gold futures rose to a two-week high during early European trade on Tuesday, extending stoing gains from the previous session after dovish remarks from Federal Reserve Chairman Ben Bernanke fuelled speculation over a third round of monetary easing.

On the Comex division of the New York Mercantile Exchange, gold futures for June delivery traded at USD1,694.05 a troy ounce during early European morning trade, gaining 0.34%.

It earlier rose by as much as 0.52% to trade at USD1,696.45 a troy ounce, the highest since March 13.

Gold futures were likely to find support at USD1,657.65 a troy ounce, Monday’s low and short-term resistance at USD1,706.15, the high from March 13.

Gold prices added to Monday’s strong 1.6% gain, continuing to draw support from comments from Fed Chair Bernanke saying that “continued accommodative policies” are needed to bring about big gains in the U.S. jobs market, which he described as “far from normal,” despite a recent improvement.

Markets interpreted the comments as an indication the central bank will maintain its ultra-loose monetary policy and reinforced the view that further easing from the central bank may be possible.

Over the weekend, Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Company, said the Fed is “likely to hint” that it plans to arrange a third round of debt purchases when policy makers meet in April.

The Fed has embarked on two previous rounds of bond-buying, most recently in late 2010, known as quantitative easing.

QE has been a key driver in gold’s bull run over the past year, as it keeps interest rates and borrowing costs low, which makes gold more attractive compared with yield- or dividend-bearing assets such as bonds or stocks.

Prices have been under pressure in recent weeks, dropping nearly 6% since late February as traders unwound long positions after the Fed gave an upbeat assessment of the U.S. economy earlier in the month, which reduced expectations for a third round of U.S. monetary easing.

The possibility of further easing weighed heavily on the U.S. dollar, which traded at a four-week low against the euro and the Swiss franc and a five-month low against the pound.

The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was down 0.05% to trade at 79.07, the lowest since March 2.

Dollar weakness usually benefits gold, as it boosts the metal's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.

Meanwhile, gold traders continued to monitor developments surrounding a nationwide strike by bullion and jewelry dealers in India, which has led to muted demand on the physical market in New Delhi over the past week.

Indian jewelry and gold shops remained closed for a tenth day in protest of a duty hike on unbranded jewelry and the doubling of an import duty on gold.

It is uncertain how long this impasse will continue. According to local traders, imports could decline by as much as 35% in 2012 from a record 969 tonnes a year earlier, while the industry might face more difficult time in coming days as marriage season begins.

India is the world's top gold consumer.

Elsewhere on the Comex, silver for May delivery rose 0.77% to trade at USD33.00 a troy ounce, while copper for May delivery added 0.2% to trade at USD3.895 a pound.