Spot gold was up 1.2 per cent at $US1665.24 an ounce in New York afternoon trade, recovering from a two-month low hit in the previous session.

US gold futures for April delivery settled up $US19.90 at $US1662.40 an ounce in moderate volume.

However, momentum weakened somewhat after the metal failed to breach $US1670, the high of its last seven sessions.

Gold is also likely to be supported by inflation pressures. Fed Chairman Ben Bernanke said before congress that rising oil prices could lead to short-term inflation pressures. Retail-gasoline prices have skyrocketed 18% this year to a 10 month high of $3.864/gallon.

Higher fuel costs act as a tax on household purchasing power and reduce consumption spending, and that also is a drag on the economy, the Fed chief said to the House Committee on Oversight and Government Reform.

Bernanke also warned that Europe must further support its banks, and warns its financial and economic situation ''remains difficult,'' even as stresses have declined.

The price of gold has lost 2 per cent so far this month as a shift in investors' perception of the health of the US economy in particular has made so-called safe-haven assets less attractive than stocks or higher-yielding currencies.

The decline in the gold price earlier this week took its toll on investment in exchange-traded funds backed by physical metal, resulting in the largest one-day fall in holdings on Friday in three months.

ETF holdings hit a record of nearly 70.9 million ounces on Tuesday, but the past couple of days of outflows have wiped out all of the buildup that had taken place so far in March.

Markets are attaching lower probability to the US Federal Reserve's embarking on a fresh round of government-bond buying, or quantitative easing, to keep short-term interest rates low to stimulate growth. That shift has been a key driver in this month's fall in the gold price.

Shayne Heffernan

Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.

Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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