LONDON: Gold prices edged higher in Europe on Thursday as European stock markets rose towards five-month highs, with speculation that central banks will unveil more monetary stimulus measures to boost growth keeping the precious metal firmly underpinned.
Uncertainty over the timing and scope of any action to be taken by the Federal Reserve and European Central Bank to loosen monetary policy kept gains in gold capped, however, while maintaining pressure on the euro and industrial metals.
Spot gold was up 0.1 percent at $1,613.19 an ounce at 0954 GMT, while US gold futures for December delivery were up 40 cents an ounce at $1,616.60. The precious metal has kept to a narrow $16 range so far this week.
European shares were up 0.3 percent after soft Chinese inflation data raised talk of further central bank policy easing to tackle declining global growth. A fall in consumer inflation to a 30-month low in July suggested the country's central bank could follow up rate cuts in June and July to boost the economy.
"Gold seems to have gotten a foothold above the $1,600 level and seems to be relatively stable," Societe Generale analyst Robin Bhar said. "It's still showing this correlation to riskier assets. We've seen a bit of a rally in the oil market and equities, and gold has kept a par with those moves."
Assets seen as higher risk have climbed in recent weeks on expectations that the ECB will take further steps to tackle the euro zone debt crisis, and that the Fed will unveil another round of growth-boosting measures later this year.
Those expectations are firmly underpinning gold, said Bhar.
"People are expecting that the stimulus will be the kick that gold needs, and if it can vault $50, it can draw in more participation, and it could be at $1,700, $1,750," he said. "But that's the caveat. We need more stimulus from central banks."
Further US monetary easing would maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom as well as weighing on the dollar and raising expectations for inflation further down the line.
ECB measures to protect the euro, meanwhile, would boost the single currency versus the dollar.
PLATINUM, PALLADIUM UNDER PRESSURE
The Russian government has drafted a bill to increase the access of companies with foreign capital to its major gold reserves, Kommersant business daily reported on Thursday. Russia was the world's fourth-biggest producer of mined gold last year.
The newspaper said the bill will allow foreign-owned businesses to mine deposits with up to 250 tonnes of gold, up five times from the previous cap of 50 tonnes set in 2008, without facing additional regulation from the state.
Among other precious metals, silver was up 0.4 percent at $28.09 an ounce, while spot platinum was up 0.5 percent at $1,411.99 an ounce and spot palladium was up 0.4 percent at $584.20 an ounce.
Palladium remains the worst performer of the major precious metals this year, down 10.5 percent compared with a 1.1 percent rise in silver and platinum and a 3.2 percent rise in gold. Both platinum and palladium have been hurt by concerns over demand from carmakers, the main users of the autocatalyst metals.
HSBC cut its price forecast for palladium to $655 an ounce in 2012 from $785, to $750 an ounce in 2013 from $825, and to $800 an ounce in 2014 from $835 on Thursday. However, it said it still expects the metal to climb from current low levels.
"Based in large part on our expectation of lower Russian exports of palladium, we forecast that the market will move back into a substantial deficit of 544,000 ounces in 2012, following a significant surplus of 1.255 million ounces in 2011," it said.
"For 2013, we forecast palladium's deficit will widen to 932,000 ounces. A swing back to a deficit would support our view that prices are likely to rally from current levels."
The bank also cut its price view on platinum to $1,525 an ounce in 2012, $1,625 an ounce in 2013 and $1,775 in 2014.
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