Gold Prices Steady Around Two-Week Highs

(REUTERS) -- Gold prices steadied around two-week highs on Tuesday after posting their biggest one-day rise since late January in the previous session, boosted by expectations that U.S. interest rates will stay lower for longer and by gains in the euro.

The metal held above the 100- and 200-day moving averages it broke through on Monday after the Federal Reserve's signal that it would keep interest rates near rock-bottom levels reassured buyers that the opportunity cost of holding bullion would stay low.

Spot gold was down 0.1 percent at $1,688.89 an ounce at 1135 GMT after earlier hitting a fresh two-week peak at $1,696.20. U.S. gold futures were up 0.2 percent at $1,688.40 an ounce.

Fed Chairman Ben Bernanke said on Monday the U.S. economy needed to grow more quickly to cut the unemployment rate. While he did not directly indicate the Fed was set to begin another round of bond purchases, he said a continuation of accommodative policies was needed to support faster growth.

The Bernanke comments suggesting the possibility of further quantitative easing of monetary policy ... pushed the U.S. dollar lower and financial markets in general upwards, and so also gold, said Commerzbank analyst Carsten Fritsch.

The prospect of further liquidity injections should put pressure on the U.S. dollar, and the prospect of continued negative real interest rates should also keep gold supported.

The dollar .DXY fell to its lowest in four weeks against a basket of major currencies on Tuesday. The euro climbed to a one-month peak against the dollar in earlier trade.

Appetite for assets seen as higher risk also held firm after largely strengthening the previous day, with world stocks hitting a 2012 high on the back of Bernanke's comments and on expectations the euro zone would agree to a bigger crisis firewall. European shares rose, and oil held above $125 a barrel.

U.S. gold futures for April delivery were up $5.70 an ounce at $1,691.30. Options expiry is due on COMEX later in the day, with most call and put options concentrated around the $1,700 an ounce level.

ETFs RECORD INFLOWS

Gold exchange-traded funds, which issue securities backed by physical metal, reported inflows on Monday. Holdings of the largest, New York's SPDR Gold Trust, increased by around 6 tonnes, reversing some of the previous week's 10-tonne drop.

Demand for the yellow metal in major consumer India remained subdued, however, as a strike among jewellers in protest at a government import levy continued.

Silver was up 0.1 percent at $32.86 an ounce. Spot platinum was up 0.8 percent at $1,655.49 an ounce, while spot palladium was flat at $663.22 an ounce.

Platinum maintained an historically unusual discount to gold as buyers worried about demand for the white metal, which is chiefly used in autocatalysts.

Platinum prices are up more than 18 percent this year after a poor performance in 2011 but have struggled to maintain traction as worries persist over growth in the euro zone, a major market for platinum-heavy diesel autocatalysts.

We remain of the view that the platinum market needs some production curtailments to improve the fundamentals over the next few years, said Deutsche Bank in a note.

The price recovery in the face of 'accidental' supply closures serves as a timely reminder of how susceptible the platinum industry is to disruptions, it added.

However, with the end of the Impala strike (earlier this year) and the reduced incidences of Section 54 stoppages, supply should recover, and the market is likely to end the year in another modest surplus - 105,000 ounces - in our assessment.