* 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 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
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