Gold extends gains to near 3-month high ahead of Janet Yellen testimony

Written by Reuters | Singapore | Updated: Feb 11 2014, 22:13pm hrs
Spot gold climbed to its highest in nearly three months on Tuesday, as investors look for hints from the new Federal Reserve chief later in the session on whether the pace of its stimulus tapering may be slowed.

US gold futures rose 1 percent, gaining for a fifth day in a row, in the longest winning streak since August 2012.

Prices were also supported by a weaker US dollar, which was wallowing near a two-week low against a basket of major currencies.

Fed Chair Janet Yellen gives her first testimony before the House Financial Services Committee at 1500 GMT, and will likely face questions on the state of the labour market and the future pace of tapering.

Recent weak economic data, including Friday's nonfarm payrolls report, has many in the market anticipating that the wind down of the bond-buying stimulus would be slowed.

"A hint of a Fed pause is not entirely out of the question given the weak unemployment data we have been getting of late, coupled with a slew of other manufacturing statistics that are pointing to further deceleration," INTL FC Stone analyst Edward Meir said.

If Yellen does indicate that the Fed could pause the tapering due to deteriorating economic conditions, it would trigger a rally in both gold and U.S equities, breaking the recent inverse relationship between the two, Meir said.

Spot gold was up 0.8 percent at $1,283.95 an ounce by 0745 GMT, after gaining 1.4 percent in the past two sessions. The metal rose as much as 1 percent to $1,287.01 earlier in the session - the highest since mid-November.

U.S. gold futures for April delivery rose as much as 1 percent to $1,287.50 - also the highest in almost three months.

Gold is often seen as an alternative investment to risky assets such as stocks though some have questioned its role as a safe-haven given the huge fund outflows last year.

"The strength in prices should be treated as selling opportunities," said Mark Keenan, head of commodities research for Asia at Societe Generale.

"These pockets of stability either driven by short-covering or cautious safe-haven demand haven't demonstrated any sustained strength," he said.

Silver also rose as much as 1 percent, tracking gold.

Platinum gained as strikes in South African mines continued. Top platinum producers and the AMCU union are set to hold separate meetings with a state mediator this week to discuss the stoppage over wages.

In the physical markets, Chinese demand eased due to the gains in prices. Premiums for 99.99 percent purity gold on the Shanghai Gold Exchange eased to $7 an ounce from $12 on Monday.

India's trade ministry said it has recommended easing curbs on gold imports, after a 77 percent drop in imports for January that helped narrow the country's trade deficit.

India had imposed curbs last year including a record 10 percent duty to discourage gold purchases.