| NEW YORK
NEW YORK Gold pared losses to end slightly lower on Tuesday, as a rising stock market prompted investors to cover short positions taken early in the session on disappointment that Federal Reserve Chairman Ben Bernanke did not hint at new stimulus measures.
In early trade, gold slid 1 percent after the release of Bernanke's prepared remarks to the Senate Banking Committee, in which he simply repeated the Fed's pledge to act if needed.
Bernanke gave few new clues about monetary policy, though he did say the U.S. economy has slowed significantly due to Europe's debt crisis and uncertainty over U.S. fiscal policy. <ID:W1E8IB007>
Bullion, a traditional inflation hedge, can be more sensitive than equities or other commodities to expectations of U.S. monetary easing. The metal has sold off several times this year on frustration that the Fed did not commit to a third round of quantitative easing, or government debt purchases, known on Wall Street as QE3.
"The gold market's reaction is suggesting that we are not going to get any stimulus any time soon until the economy deteriorates much further," said Phillip Streible, senior commodities broker at futures brokerage R.J. O'Brien.
"I think these markets are going to be in a trading range for a while," Streible said. But he said gold's downside would be limited by the possibility of Fed easing in the future.
Spot gold was down 0.3 percent at $1,585.30 an ounce by 2:59 p.m. EDT (1859 GMT), well off an earlier high of $1,599 an ounce.
U.S. COMEX gold futures for August delivery settled down $2.10 an ounce at $1,589.50, with trading volume about 10 percent below its 30-day average, preliminary Reuters data showed.
Gold has traded within a $150 range for the last three months, largely tracking the euro/dollar exchange rate, a key price driver, as it awaits clearer direction on U.S. policy.
So far this year, gold is up 1.5 percent, a significant retreat from January when it was up 15 percent after the Fed said it would keep interest rates near zero until at least the end of 2014.
"Gold can go down if investors feel like Bernanke is falling behind the curve. That was the scenario which happened in 2008 when gold started correcting until it basically pulled out all the stops," said Doug Roberts, chief investment strategist for Channel Capital Research.
A disappointing U.S. June nonfarm payrolls report and signs of global economic slowdown spurred fears that deflation will send gold prices sharply lower. In 2008, gold had at one point lost more than 30 percent during the global economic crisis.
PHYSICAL, INVESTMENT DEMAND WEAK
Physical demand in India remained lackluster, with a near-record low in the rupee versus the dollar making gold more expensive for local buyers.
India's festival season, during which weddings will also take place, will start in August and continue until November. India is historically the world's biggest bullion consumer, though China, where recent buying has also been soft, has emerged as a challenger for that title.
Meanwhile, the world's largest gold-backed ETF SPDR Gold Trust, said its holdings fell another 3.6 tonnes on Monday, bringing total outflows since the start of the month to 13.4 tonnes. In the same period of the previous month, they rose around 7 tonnes.
Among other precious metals, silver edged up 0.1 percent at $27.32 an ounce. Spot platinum inched up 0.1 percent to $1,413.75 an ounce, while spot palladium climbed 1.4 percent to $581.25 an ounce.
(Additional reporting by Jan Harvey in London; editing by David Gregorio and Alden Bentley)