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* Dollar index extends losses to 0.4 percent
* Buying interest from China subdued (Updates prices)
By Clara Denina
LONDON, July 16 (Reuters) – Gold rose on Tuesday as the dollar eased ahead of Federal Reserve Chairman Ben Bernanke’s congressional testimony later in the week, which investors expect could provide clues on the timing of the central bank’s tapering of monetary stimulus.
Bullion rose 5 percent last week – its biggest weekly gain in nearly two years – on hopes the stimulus would continue after dovish remarks by the Fed’s chief.
But prices have been stuck in a tight range over the last three sessions, failing to cross the $1,300 mark as investors take the view that the market will have to start thinking of life without quantitative easing, at least in the United States.
The tapering of the Fed’s $85 billion monthly bond purchases would support a rise in interest rates and bolster the dollar, reducing gold’s attractiveness.
“The market is still very worried about what Bernanke is going to say this week after the mixed signals we have had in the past couple of months,” MKS Capital senior vice president Bernard Sin said.
“We think he will support the tapering language in September or December, which will support a strong dollar and weigh on gold… we should be looking at $1,250 in the short term.”
Spot gold extended initial gains, up 0.7 percent to $1,290.01 an ounce by 1251 GMT, while U.S. gold futures for August rose $6.70 to $1290.20 an ounce.
Technical topside resistance remains in the $1,298-$1,300 area and support at 1,268, ANZ Research said in a note.
The dollar came under pressure after disappointing U.S. retail sales for June on Monday raised doubts about an imminent reduction in stimulus by the Fed. It was down 0.4 percent against a basket of currencies.
The market is now focused on Bernanke’s twice-yearly testimony to congressional committees on Wednesday and Thursday.
Gold’s appeal as a safe-haven and inflation hedge has been tarnished this year by a stronger dollar, rallying stock markets, improving bond yields, which all led to rapid outflows from gold-backed exchange traded funds.
The top eight gold ETFs have seen holdings drop by about 19 million ounces, or $24 billion at current prices, so far this year, according to Thomson Reuters data.
PHYSICAL DEMAND
Gold jewellery demand in top buyer India ebbed and was seen as unlikely to gain traction until late August, when seasonal buying during the autumn wedding season and religious festivals should pick up again.
Buying from China, which usually provides support for gold during Asian trading hours, was also subdued as buyers waited for clearer price directions, traders said.
Premiums for gold bars on the Shanghai Gold Exchange (SGE) fell to $25 over the London spot price from as high as $36 last week, capping price rallies.
Hong Kong and Singapore premiums remain however healthy at $5 an ounce and $3 an ounce respectively, MKS said.
Silver rose 0.4 percent to $19.97 an ounce, having risen 5.6 percent last week. Palladium was down 0.3 percent to $730.47 an ounce.
Platinum was unchanged at $1,421.74 an ounce after data showed the European auto market was very weak in June. Europe is the main market for diesel engines, which mostly use platinum-based catalysts to clean up exhaust emissions.
