Gold holds near 1-1/2-week high as Bernanke backs stimulus

Gold traded flat on Wednesday, perching near a 1-1/2-week high hit in the previous session as the US Federal Reserve reassured investors of its commitment to loose monetary policy, burnishing bullion's appeal as a hedge against inflation.

Fed Chairman Ben Bernanke strongly defended the US central bank's stimulus measures before Congress on Tuesday, easing fears it would cease buying bonds through so-called quantitative easing sooner rather than later.

"The market is a little less concerned about a premature exit of quantitative easing, which would be bad for gold," said Nick Trevethan, senior commodity strategist at ANZ in Singapore.

The three rounds of QE from the Fed have helped gold stage a record-breaking rally in the past few years, as investors worried about currency debasement due to money-printing seek to store value in gold.

In recent months, concerns that the central bank could exit the policy on signs of a fledgling economic recovery have weighed on the metal.

As a gauge of investor interest, holdings of the SPDR Gold Trust, the world's top gold-backed exchange-traded fund, fell 2.408 tonnes from the previous session to 1,270.44 tonnes on February 26 in its sixth session of decline.

US housing data on the previous session showed that the property market, a pillar of the world's top economy, was on the mend, but the job market, which the Fed has pegged its policy to, remains sluggish.

Spot gold was little changed at US$1,612.31 an ounce by 0218 GMT, after hitting a 1-1/2-week high of US$1,619.66. It rose 1.2 percent on Tuesday, its biggest daily gain in three months.

US gold inched down 0.2 percent to US$1,612.10.

Bernanke will remain the focus of the market, when he delivers testimony to the House Financial Services Committee.

Worries about political instability in Italy as a result of inconclusive elections triggered fear that the euro zone's No.3 economy could slip back into fiscal chaos and drag the bloc into another crisis.

But physical buying in Asia slowed after gold climbed for four days straight. "We have seen profit-taking along the way up and much less physical buying at these levels," said a Singapore-based dealer.

"Clients still prefer to buy on dips and probably will start buying again if prices retreat to close to US$1,600."

Goldman Sachs cut its 2013 gold price forecast to US$1,600 an ounce from US$1,810 an ounce, saying the metal's recent price drop and an increase in US real interest rates have led it to bring forward its projections for a decline in the metal.

Spot platinum dropped 0.2 percent to US$1,614.99, returning to a small premium over gold after the gap closed briefly on Tuesday.