LONDON: Gold firmed on Tuesday as the dollar retreated, but held within this month's narrow range as investors awaited news on central bank action to stimulate growth, which could boost liquidity, keep interest rates low, and fuel longer-term inflation fears.
Speculation that the Federal Reserve in particular could launch another round of gold-friendly stimulus measures like quantitative easing printing money to buy bonds - has helped support bullion prices above $1,600 an ounce.
A pledge by the European Central Bank that it too would launch measures to shore up the euro, consequently weighing on the dollar, has also boosted gold. However, it has struggled to build on those gains in the absence of concrete action.
Spot gold was up 0.1 percent at $1,611.80 an ounce at 1004 GMT, while US gold futures for December delivery were up $1.90 an ounce at $1,614.50.
"Gold prices are holding up very well in the light of weak demand from the jewellery sector and from investors," Commerzbank analyst Eugen Weinberg said. "That bodes well for a price increase that we expect for the end of the third quarter and the fourth quarter."
"There is speculation about QE3 in the United States and further unconventional monetary stimulus in Europe," he said. "There is some moderate optimism in light of that."
The euro, which in the absence of guidance on stimulus and strong physical demand is largely dictating short-term moves in gold, was up 0.2 percent versus the dollar, helped by well-received French and German growth data.
German gross domestic product grew 0.3 percent in the second quarter, slightly better than expectations on solid exports and consumption. The French economy narrowly avoided contracting in the second quarter.
The single currency pared gains, however, after the German ZEW economic sentiment survey came in worse than expected, and a report showed the euro zone economy contracted by 0.2 percent during the second quarter.
European shares also retreated from their session peak, though they remained higher as investors weighed up the prospect of more stimulus measures.
"Macro direction and policy expectations will determine the bulk of gold's performance, with the constant reassessment of expectations for policy easing from the Fed being a key driver," UBS said in a report on Tuesday.
"We expect a (second-half) price recovery as our underlying core view remains constructive," it said. "Gold needs a 'big bang' to reignite investor interest, the likely culprit to be policy response from central banks, with US action the key."
PLATINUM STILL BELOW $1,400/oz
Trading volumes on the popular gold spot deferred contract on the Shanghai Gold Exchange stood at 9,650 kgs, with the average daily volume last week at 10,442 kg down more than a third from last month.
Among other precious metals, silver was up 0.4 percent at $27.90 an ounce, while spot platinum was up 1.2 percent at $1,396.50 an ounce and spot palladium was up 1.2 percent at $576.22 an ounce.
The platinum group metals outperformed after a wave of violence in South Africa caused by union infighting killed 9 people and disrupted operations at a mine.
The clashes involve a struggle for membership between the dominant National Union of Mineworkers (NUM) and the upstart Association of Mineworkers and Construction Union (AMCU).
Police reinforcements including armoured vehicles were deployed at the Marikana operations about 100 km northwest of Johannesburg. Two policemen were among those killed in the violence, while the company said a third was critically injured.
"Earlier this year, the NUM and AMCU rivalry led to a six-week shutdown of the world's largest platinum mine, run by Impala Platinum," HSBC said in a note. "Strife of this nature has historically curbed PGM production and is positive for PGM prices."
However, platinum's discount to gold held above $200 an ounce as concerns over demand continued to weigh on the autocatalyst metal, which is down nearly 1 percent this month and has fallen nearly 20 percent from its February high.
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