Gold fell on Wednesday as a media report quoting Germany's Angela Merkel as saying she could not be sure the European project would work knocked the euro, and after the Federal Reserve disappointed markets by failing to unveil more economic stimulus plans.
Prices had risen towards $1,600 an ounce on Tuesday on anticipation Fed chairman Ben Bernanke would hint at another round of gold-friendly quantitative easing to boost growth after a spate of disappointing economic data.
His failure to do so in remarks before the Senate Banking Committee led many to cash in gains. However, a rebound in stock markets after some better-than-expected earnings reports helped the metal recover. .EU
Spot gold was down 0.3 percent at $1,577.90 an ounce at 1134 GMT, while U.S. gold futures for August delivery were down $11.70 an ounce at $1,577.80.
In the absence of physical demand, gold has reacted mainly to moves in the dollar and talk of more QE, which would weaken the dollar and maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom.
We are likely to remain range-bound for the time being, BNP Paribas analyst Anne-Laure Tremblay said. The next potential important data, pending no development in the euro zone, are the non farm payrolls at the start of August.
We expect Mr. Bernanke to announce QE3 at the Jackson Hole speech on 31 August, she added.
The euro fell to a session low against the dollar and German Bund futures reversed earlier losses, with traders citing a media report that quoted German Chancellor Angela Merkel as saying she could not be sure the European project would work.
Other commodities fell, meanwhile, as investors focused on Bernanke's gloomy assessment of the U.S. economy on Tuesday, which left the door open for more monetary easing and dampened demand for the greenback.
Hints fresh easing could be on the cards have sparked a number of gold rallies this year, but it has remained rangebound between $1,540-1,640 for the last six weeks, awaiting direction.
No doubt, the gold bulls will seize on the fact that further stimulus is not off the table, but it is not going to happen for a while, if it ever does, and as such the upside for gold remains limited to my mind. We are still in the same ranges, Marex Spectron said in a note.
I see no reason for the time being for that to change. The market remains thin, with low volumes and no real interest.
Bernanke will return to centre stage at 1400 GMT to testify before the Financial Services Committee, but is unlikely to add substantially to Tuesday's remarks, analysts said. U.S. housing starts data is due at 1230 GMT, and the Fed will later release its Beige Book of current economic conditions.
Among other precious metals, silver was down 0.9 percent at $27.07 an ounce, tracking losses in gold. Silver has underperformed gold this year, easing just over 2 percent against gold's 1 percent gain.
The metal has suffered from a dearth of investment demand this year after a number of severe corrections in 2011, soft industrial offtake and record-high mine supply.
Mexican miner Fresnillo (FRES.L), the world's largest primary silver producer, said silver output was on track to meet its 2012 targets despite a drop in quarterly production, helped by the ramping up of production at its new Saucito mine.
Spot platinum was down 0.4 percent at $1,407.25 an ounce, while spot palladium was down 0.8 percent at $575.13 an ounce.
The metals have also underperformed gold this year, with palladium falling nearly 12 percent since December, as demand from the automotive sector, the main consumer of platinum and palladium, remains weak.
Even the threat of supply disruptions in major producer South Africa, where miners have struggled against labor unrest, rising costs and sluggish prices, has not galvanized the market.
Costs have continued to increase in 2012, RBS said in a note on Wednesday. For the year in full, our price forecasts suggest the South African 4E basket will average (around) 10,100 rand an ounce. That basket includes platinum, palladium, rhodium and gold.
We reiterate our view that this situation is not sustainable and note that this is the main driver of our bullish outlook for the platinum price, it said. We forecast a fourth-quarter average of $1,650 an ounce, compared to current levels around $1,420 an ounce.