LONDON: Gold rose for a third consecutive session on Wednesday, as the dollar eased ahead of minutes of last month's Federal Reserve meeting, which traders believe will give clues on whether the US central bank will soon start to reduce monetary stimulus.
Bullion has fallen by nearly 10 percent since Fed Chairman Ben Bernanke said last month the US economy was recovering strongly enough to slow the pace of the Fed's $85 billion monthly bond purchases.
Some traders said gold may see some support if the Fed decides to taper in December or later, instead of current expectations of a September wind down, although many think no surprises are to be expected.
"I think there should not be anything that will surprise the market from the minutes, we should pretty much already know what is in them," Standard Bank analyst Marc Ground said.
"A lot of it is priced in by investors, but the higher the gold price is the more chance there is that it may stumble and then fall," he added. "And given that it is not really investment that pushed it higher this week, there is potential for downside."
Spot gold gained 0.3 percent to $1,252.96 an ounce by 1036 GMT. It hit a one-week high of $1,260.01 on Tuesday, helped by higher-than-expected Chinese inflation data and physical demand and is on track for its best weekly gains since the end of April. Comex gold futures for August rose $5.00 to $1,250.80.
The dollar fell against a basket of currencies, tracking the benchmark US 10-year Treasury yields, which eased to 2.6 percent.
As gold pays no interest, the fall in returns from US bonds is seen as positive for the metal.
The Fed releases minutes from its June policy meeting at 1800 GMT and Bernanke is due to speak at a conference later in the day.
Several Fed officials have tried to reassure global markets after Bernanke's comments in June caused panic. The stimulus measures have also boosted liquidity overall and driven funds into commodities over the past few years.
CHINA DATA
Gold prices shrugged off initial weakness after disappointing Chinese trade data stoked fears of a slowdown in demand for commodities in the world's second-biggest economy.
The world's second-largest gold consumer China has been a big support for gold prices, which have lost a quarter of their value this year.
Gold should however find support at $1,210, where some good buying was seen this week from China, MKS Capital said in a note.
But physical demand was likely to ease as refineries prepare to shut for house-keeping during the summer period, traders said.
Holdings in SPDR Gold Trust, the largest gold-backed exchange-traded funds (ETFs) declined a further 7.2 tonnes on Tuesday, adding to the previous session's 15-tonne drop. The fund's already on track for its biggest weekly outflow in seven weeks, with only two days accounted for.
Silver was down 0.2 percent to $19.19 an ounce. Platinum rose 0.6 percent to $1,371.74 an ounce and palladium gained 1.1 percent to $703.97 an ounce.
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