* Dollar drop underpins gold's gains
* Markets eye Bernanke congressional testimony Weds, Thurs
* Physical gold buying resilient but shows signs of slowing
(Adds analyst comment, updates prices)
By Frank Tang and Clara Denina
NEW YORK/LONDON, July 16 Gold rose on Tuesday as
signs of stabilizing U.S. inflation pressures suggested the
Federal Reserve is on track to start tapering its bond purchases
later this year rather than imminently.
Bullion investors remain focused on Fed Chairman Ben
Bernanke's semi-annual testimony to U.S. Congressional
committees this Wednesday and Thursday, which will be watched
for further signs about the timing and speed of its $85 billion
monthly mortgage-backed securities buyback.
The metal extended gains after the U.S. Labor Department
said its Consumer Price Index increased 0.5 percent, the largest
rise since February.
"The CPI figure is lower than what the Fed wants, so the
gold market sees this as tapering is further away," said Carlos
Perez-Santalla at brokerage Marex Spectron.
Spot gold rose 0.7 percent to $1,290.56 an ounce by
2:40 p.m. EDT (1840 GMT).
U.S. gold futures for August delivery settled up
$6.90 to $1,290.40 an ounce, with volume at about 30 percent
below its 30-day average, preliminary Reuters data showed.
Gold gained 5 percent last week, its biggest weekly gain in
nearly two years, after Bernanke said the U.S. central bank
needed to keep a stimulative monetary policy in place given an
uncertain job market and low inflation.
The metal was still down 23 percent this year on heavy fund
liquidation due to a lack of inflation and after Bernanke in
June hinted at withdrawing monetary stimulus.
Gold's appeal as a safe-haven and inflation hedge has been
tarnished this year by a stronger dollar, rallying stock
markets, and improving bond yields, which all led to rapid
outflows from gold-backed exchange traded funds.
The top eight gold ETFs monitored by Reuters have seen
holdings drop by about 19 million ounces, or $24 billion at
current prices, so far this year. This represents a 25 percent
drop from a record high reached at the start of 2013.
On Tuesday, bullion was supported as the U.S. dollar
came under pressure after disappointing U.S. retail sales for
June on Monday raised doubts about an imminent reduction in
stimulus by the Fed.
PHYSICAL DEMAND EASES
Demand from the physical gold market remains strong but has
showed signs of easing, dealers said.
Gold jewellery demand in top buyer India ebbed and was seen
as unlikely to gain traction until late August, when seasonal
buying during the autumn wedding season and religious festivals
should pick up again.
Buying from China, which usually provides support for gold
during Asian trading hours, was also subdued as buyers waited
for clearer price directions, traders said.
Premiums for gold bars on the Shanghai Gold Exchange (SGE)
fell to $25 over the London spot price from as high as $36 last
week, capping price rallies.
Silver rose 0.1 percent to $19.91 an ounce, while
palladium was up 0.7 percent to $733.25 an ounce.
Platinum eased 0.1 percent to $1,420.49 an ounce
after data showed the European auto market was very weak in
June. Europe is the main market for diesel engines, which mostly
use platinum-based catalysts to clean up exhaust emissions.
2:40 PM EDT LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL
US Gold AUG 1290.40 6.90 0.5 1275.60 1294.70 116,704
US Silver SEP 19.935 0.096 0.5 19.660 20.045 24,658
US Plat OCT 1425.10 3.70 0.3 1413.40 1434.90 6,560
US Pall SEP 735.60 3.45 0.5 727.00 737.25 2,106
Gold 1290.56 8.57 0.7 1277.73 1295.34
Silver 19.910 0.020 0.1 19.730 20.040
Platinum 1420.49 -1.51 -0.1 1414.00 1430.00
Palladium 733.25 4.75 0.7 730.17 735.25
TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG
US Gold 142,703 193,507 179,431 22.5 -0.43
US Silver 27,093 66,385 56,418 30.6 1.18
US Platinum 6,675 16,183 13,073 27 2.79
US Palladium 2,139 4,399 5,481
(Additional reporting by A. Ananthalakshmi in Singapore;
editing by James Jukwey, Keiron Henderson, David Evans,
Marguerita Choy and Nick Zieminski)