* Gold books 2nd weekly gain after 3 weeks of decline
* Dollar surprises by falling after benign inflation data
* U.S. Consumer Price report supports more monetary easing
* Trading light ahead of Fed policy meeting next week
(New throughout, updates prices, market activity; new byline,
changes dateline, previously LONDON)
By Carole Vaporean
NEW YORK, March 15 Gold finished higher on
Friday, marking its second straight weekly gain, as the euro
firmed, U.S. and European shares fell and the U.S. consumer
price report supported the view that the Federal Reserve has
leeway to keep up its monetary easing.
U.S. consumer price data recorded the largest increase in
nearly four years in February, as the cost of gasoline surged.
Excluding food and energy, however, the gain was only 0.2
percent, slower than January's 0.3 percent pace.
Despite the benign inflation reading, the dollar skidded
from a seven-month high against a basket of currencies. The U.S.
CPI data affirmed expectations that the Federal Reserve will
continue its bond-buying program for the foreseeable future.
"It caught us a little bit by surprise that the dollar was
weaker against the euro. With all the economic data lately, I
would think that it would be stronger. But with the Fed meeting
next week, I think a lot of people don't want to make bets ahead
of it," said David Lee, a gold trader at Heraeus Precious Metals
Management in New York.
Gold prices were poised for a second straight week of small
gains, with most players sidelined in anticipation of the
Federal Reserve's policy setting meeting next week. But in
recent sessions gold has been pressured by a strong dollar,
which has benefited from good news on the U.S. economy, luring
foreign buyers into U.S. assets on expectations that U.S. growth
is outperforming other major countries.
Spot gold was up 0.13 percent at $1,591.90 an ounce
by 3:35 p.m. EDT (1 935 GMT) , on track for a weekly gain of less
than 1 percent. U.S. gold futures for April delivery
settled $1.90 higher at $1,592.60.
Lee noted that trading volumes have been low and percentage
changes small all week.
Despite U.S. data showing healthier economic readings than
expected all week long, the U.S. central bank was seen as having
scope at its March 19-20 gathering to decide it will keep
pumping money into the economy to bring down unemployment.
Officials at the central bank meet next week to assess the
economy and are widely expected to keep purchasing $85 billion
in bonds per month to spur even stronger growth.
Chairman Ben Bernanke has already signaled he believes the
costs of inaction are greater than continued stimulus. Still,
the strong data series have given gold investors reason to pause
ahead of the policy meeting on worries that the Fed may
reconsider the need for more quantitative easing, or QE.
"No one really knows what's going to happen next week. But
if Bernanke even hints at any slowing down on QE, I think gold
and other commodities will probably sell off," said Lee.
Accommodative monetary policies favour gold, because low
interest rates encourage investors to put money into
"The Fed said is going to expand its balance sheet for a
while, and for that reason inflation and inflation-related data
are not a concern, whereas it is clearly a factor for gold that
monetary easing in key markets continues," Danske Bank analyst
Christin Tuxen said.
Gold also found strong support from a rebounding euro, which
had reached three-month lows against the dollar in the previous
session, analysts said.
"We see this rebound continuing in the short term, and this
may reflect some near-term upside for gold," Tuxen said.
Analysts said the prospect of EU leaders looking at
short-term ways of boosting faltering euro zone economies may
lift the euro against the dollar.
A weaker dollar makes commodities such as gold cheaper for
holders of other currencies.
U.S. and European shares fell on Friday, reversing from
recent multi-year highs as investor appetite for riskier assets
One gauge of investor interest, holdings of SPDR Gold Trust
, the world's largest gold-backed exchange-traded fund,
were unchanged at 1,236.307 tonnes on March 14 from a day
earlier. Even so, they have dropped 3.432 tonnes so far this
week - on course for an 11th week of decline.
Signs of investor fatigue and higher downside risks to the
gold outlook led Barclays analysts to cut their 2013 price
forecast by 7.4 percent to $1,646 an ounce. Barclays did say it
saw some scope for gold to gain traction, given the debt ceiling
debate in the United States, scheduled for May.
Spot silver fell 0.21 percent to $28.72 an ounce.
Platinum was even at $1,586.49. The metal has
returned to trade around parity with gold again this week on
worries over auto demand growth in Europe, which mostly uses
platinum loadings in auto catalysts to clean up exhaust
emissions. Palladium added 0.55 percent to $771.72.
(Editing by William Hardy, Jane Baird and David Gregorio)