Gold slips as Bernanke dampens QE3 expectations

Gold fell on Wednesday after Federal Reserve Chairman Ben Bernanke offered no hints of further US monetary easing in a speech a day earlier, taking pressure off the dollar.

Bernanke acknowledged the US economy has slowed but offered no hint that the central bank is considering any more stimulus to accelerate growth.

Spot gold was bid at USD 1,536.36 an ounce at 0913 GMT, against USD 1,542.85 late in New York on Tuesday. US gold futures for August delivery fell USD 6.50 an ounce to USD 1,537.50.

The metal rose above USD 1,550 earlier in the week as the US currency wilted, pressured by expectations that US interest rates will stay low and that another round of quantitative easing -- which roughly equates to printing money -- may be on the cards.

But it failed to retain traction after Bernanke's speech.

"Bernanke was trying to inject some confidence," VM Group analyst Carl Firman said. "His words did at least delay expectations for QE3."

In the longer term, however, gold is likely to remain firmly underpinned by dollar weakness, with the Fed showing no signs of reversing its easy interest rate policy. The bank is likely to lag others such as the European Central Bank in raising rates.

"Gold still has more tailwinds that headwinds," said Firman. "It is very doubtful now that the United States will be raising interest rates over the next 12 months, which means the negative interest rate environment in the US is going to stay."

"That will leave investors looking for higher returns elsewhere, and gold is one beneficiary of that."

The dollar was up around a quarter of a percent against a basket of six other major currencies early on Wednesday and by a similar amount versus the euro.

A firmer dollar tends to pressure gold, as it makes dollar-priced assets more expensive for other currency holders, and makes the metal less attractive as an alternative asset.

ECB meeting awaited

However, it is still down nearly 10% against the euro so far this year, and is likely to post further losses. The ECB is widely expected to flag a rate rise for next month at its meeting in Frankfurt on Thursday, analysts said.

"The ECB's June rate decision and a monetary policy statement are important to watch out for on Thursday," said Andrey Kryuchenkov at VTB Capital.

"The benchmark rate is expected to stay flat at 1.25%, but following media comments from Trichet, it's still worth paying attention to."

On the wider markets, European shares extended losses and US stock futures pointed to a lower opening on Wall Street on Wednesday, as equities were pressured by Bernanke's speech. [.N]

US crude oil futures fell nearly USD 1 a barrel while other commodities like copper and aluminium also eased.

Silver was at USD 36.51 an ounce against USD 37.11.

The world's largest silver exchange-traded fund, the iShares Silver Trust , said on Tuesday its holdings rose by just under 1 million ounces from the day before.

Swiss bank UBS said retail interest in silver has increased strongly in Asia, particularly China, in tandem with the metal's rally to a record high near USD 50 an ounce earlier this year.

"As we've noted in the past, China has become one of the largest marginal buyers of silver over the past nine months, and particularly this year," analyst Edel Tully wrote in a note.

"But these buyers are fickle, as quick to exit the market as to enter. With the Chinese retail market set to expand, the potential for even more volatility in silver, including more explosive price gains, is therefore large."

Platinum was at USD 1,815.99 an ounce against USD 1,828.55, while palladium was at USD 798 against USD 804.38.