Gold steady; palladium firms on auto recovery

SINGAPORE: Spot gold held steady on Thursday as a wait-and-see sentiment prevailed on future US monetary policy moves, while palladium strengthened as the automobile sector recovers from the Japan earthquake in March.

The dollar index edged lower, as the euro was underpinned by expectations that the European Central Bank will likely flag a July rate hike at a meeting later in the day.

Spot gold was steady at $1,535.65 an ounce, after losing half a percent in the previous session.

US gold inched down 0.1 percent to $1,537.20.

The US Federal Reserve's $600 billion bond buying programme, launched last November to stimulate economic growth, is set to expire at the end of June. But recent data showed troubling signs the economic recovery may have stalled, fuelling speculation that more stimulus measures would be launched.

"The market is at a loss. We need to wait for the verdict on whether there will be further quantitative easing from the Fed to get a clear sense of the future direction," said a Tokyo-based trader.

The Federal Open Market Committee meeting on June 21 and 22 is expected to shed light on the monetary policy stance in the second half of the year.

Spot gold has been trapped in a range between $1,530 and $1,550 so far this week, but technical analysis suggested that gold could correct to $1,522 in the short term.

Spot palladium was the only precious metal trading in positive territory, up 0.7 percent to $804.71.

A recovering auto sector in Japan, after the devastating earthquake and tsunami disrupted the supply chain pushed the metal, used in autocatalysts, to a three-month high of $807.50 earlier this week.

"We continue to find palladium's fundamentals appealing, particularly in light of the likely recovery in auto production in Japan and elsewhere in the coming months," said a research note by Macquarie.

Spot silver lost 0.4 percent to $36.65, extending losses from the previous session. US silver was up 0.2 percent at $36.69.

Prices of silver surged to a record high just below $50 in late April, before collapsing more than 30 percent over the following two weeks, triggered by consecutive margin hikes in COMEX silver.

"The enthusiasm in silver has shrunk. There is pretty strong resistance at $38 to $39, but we've also seen support below $35," said the Tokyo-based trader.

Holdings in the iShares Silver Trust, the world's largest silver-backed exchange-traded fund, stood at 9,914.21 tonnes, down 13 percent from a record high of 11,390.06 tonnes hit on April 25.

Copyright Reuters, 2011