PRECIOUS-Gold heads for best week in four as stocks retreat

Fri May 24, 2013 10:49am EDT

* Gold boosted this week by drop in stock markets

* Fed official dampens talk Fed policy may tighten

* Largest physical gold fund sees fresh outflow (Updates prices, adds comment)

By Jan Harvey

LONDON, May 24 (Reuters) - Gold stayed on track for its biggest weekly rise in a month on Friday, supported by a drop in stock markets and comments from a Federal Reserve official that dampened talk the U.S. central bank is set to curb monetary stimulus.

Gold got a boost this week from a fall in equities, which in Europe posted their biggest one-day drop in nearly a year on Thursday. A rotation out of gold and into stocks this year has helped drive gold prices down 17 percent.

Speculation the Fed would scale back its monetary easing programme threatened to weigh on gold this week after Fed Chairman Ben Bernanke said it could start scaling back its $85 billion in monthly bond purchases in the next few meetings.

But St. Louis Fed President James Bullard said on Friday that U.S. inflation would have to pick up before he voted to scale back stimulus.

Spot gold was at $1,390.01 an ounce at 1427 GMT, little changed from $1,390.40 late on Thursday but up 2.3 percent on the week. It is on track for its biggest weekly rise since late April, pulling further away from the near 2-1/2 year low it slumped to during last month's rout.

"This week presented something for everyone," Saxo Bank vice president Ole Hansen said. "The bears have not seen any evidence of them being wrong, while the bulls got a bit of safe haven and on balance a rather dovish Bernanke."

"Bottom line, we are still in dangerous territory having failed so far to move back above $1,414. The double bottom which is now in the making might give technical traders some comfort, but for it to be confirmed we ideally need to see a $1,432 print, so it's not yet something to lean against.

U.S. stocks fell for a third day on Friday, hurt by lingering concerns the Fed may scale back its support to the economy, while European stocks were set to end lower this week, the first week in five.

GOLD FUND REPORTS FRESH OUTFLOW

The SPDR Gold Trust, the world's largest gold-backed ETF, reported at the close of Thursday that its holdings had fallen by another 1.5 tonnes, bringing its total outflow for the week to 19.8 tonnes.

The fund is on track for its largest weekly outflow since the week ended April 26. At 1,018.567 tonnes, its holdings were at their lowest in more than four years.

Macquarie said in a note on Friday that ETF liquidation this year had totalled 450 tonnes of gold.

"Given the extent of these outflows - equivalent to mine production from all of Africa and South America during the same period - that the gold price hasn't completely collapsed is testament to strong retail demand (for jewellery, coins and bars)," it said.

"If ETFs continue to leach gold - and despite the outflows, over 2,200 tonnes remain - then gold's price outlook will depend on these retail buyers."

Among other precious metals, silver was down 0.3 percent at $22.52 an ounce. Silver held near its cheapest versus gold in 2-1/2 years on Friday, with nearly 62 ounces of silver needed to buy an ounce of gold.

Spot platinum was down 0.2 percent at $1,456.24 an ounce, while spot palladium was down 1.1 percent at $726.22 an ounce. (Reporting by Jan Harvey; Editing by Jane Baird and Alison Birrane)

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