Gold prices rose on Friday in choppy trade ahead of a speech by U.S. Federal Reserve Chairman Ben Bernanke in Jackson Hole, Wyoming, which will be closely watched for hints on the outlook for monetary policy.
The metal is still set for its first weekly loss in eight weeks, however, as investors took profits after its surge to record highs at $1,911.46 on Tuesday. Volatility spiked, with prices sliding more than $200 from that level by Thursday.
Spot gold was up 0.8 percent at $1,783.64 an ounce at 1332 GMT, having earlier risen as high as $1,793.39 before briefly turning negative. It remains vulnerable to further losses, analysts said.
There is a very good chance that gold will erode the $300 speculative spike that we have seen since the start of August, said RBS Banking & Markets analyst Nick Moore. Our view is that there won't be anything exciting out of (Bernanke's) communique, other than soothing words.
While markets are hoping for some indication the U.S. central bank is prepared to step in to support an economic recovery, Bernanke is seen as unlikely to announce a third round of Fed bond buying, or quantitative easing. The Fed has already bought $2.3 trillion in longer-term securities.
Data released on Friday showed the U.S. economy grew much more slowly than previously thought in the second quarter as business inventories and exports were less robust, although consumer spending was revised up.
Saxo Bank analyst Ole Hansen said that while the market could correct further if no more monetary easing is announced, he does not expect gold to fall below $1,700 an ounce.
That the recent sell-off reflected some scaling back of QE3 expectations suggests that gold's reaction to potential disappointment today may be less severe, said UBS in a note.
While we think that the bulk of the selling is done, the fragility of investor sentiment towards gold at the moment and the bounce of the past 12 hours could mean that gold will suffer further losses, albeit more minor than in recent days.
U.S. gold futures GCv1 for August delivery were up $23.70 an ounce at $1,786.70.
STOCKS MARKETS RETREAT
On the wider markets, U.S. and European shares slipped on Friday, while the euro was little changed versus the dollar and oil prices fell. German government bonds held steady ahead of Bernanke's speech.
Outflows from the world's largest gold-backed exchange-traded funds also dried up on Thursday, with its holdings remaining at 1,232.3 tonnes. It is still on track to post an outflow of nearly 60 tonnes this week, however.
Now that short-term traders (have) booked profits in gold futures and ETFs, there are also physical buyers who moved in on the latest rally and who will choose to hold onto their longs, said VTB Capital in a note.
Among other precious metals, silver prices fell 0.1 percent to $40.97 an ounce.
The metal failed to post its usual stellar gains on the back of gold's latest rally as investors remained cautious after being burnt by its sharp price correction earlier this year, when it plunged more than 30 percent in less than a week.
The gold:silver ratio, representing the number of silver ounces needed to buy an ounce of gold, stood at around 43 on Friday, well above the level around 30 it traded near in April when both metals hit record highs.
Meanwhile, spot platinum was up 0.1 percent at $1,810.10 an ounce, and spot palladium was down 0.3 percent at $744.22 an ounce. (Editing by Alison Birrane)