LONDON, March 21 (Reuters) – Gold inched up on Thursday as a pledge by the U.S. Federal Reserve to stick with its loose monetary policy lent support, while continued uncertainty over Cyprus also triggered some buying interest.
The Fed said it would press on with aggressive policy stimulus, despite improvement in the U.S. economy and unfazed by concerns that the large-scale quantitative easing would inflate asset bubbles and disrupt financial markets.
The Fed’s quantitative easing has helped gold stage a record-breaking rally in recent years, but signs of economic recovery in the past few months raised worries that the central bank would wind the policy down sooner than expected, contributing to liquidation from gold exchange-traded funds.
Spot gold firmed 0.2 percent to $1,608.56 an ounce by 1059 GMT, off a three-week high of $1,615.16 hit earlier this week.
U.S. gold futures for April delivery were little changed at $1,607.07.
“Gold is positively reacting to the Fed saying that quantitative easing will not end any time soon and there is also uncertainty of what is going on in Cyprus,” Saxo Bank senior manager Ole Hansen said.
Cyprus was buying time by extending a bank lockdown to next week, scrambling to avert a financial meltdown after rejecting the terms of a bailout from the European Union and turning to Russia for a lifeline.
The initial shock in financial markets has however faded, as the small size of Cyprus’s economy is expected to have a minimal impact on a global scale, and its support for gold may not last long, some analysts said.
“The big disappointment for investors is that we haven’t managed to break any key levels (after the Cyprus news) and that raises the near-term risk that if we see some more dollar strength it could potentially tip gold back into some profit-taking,” Hansen said.
Traders see the metal likely to remain in a range between $1,600 and $1,620 in the short term, while a break either way could trigger a further $20 move.
“I still favour buying dips particularly if we revisit the $1,590-95 zone,” MKS Capital trader Alex Thorndike said.
In wider markets, the dollar strengthened against the euro and European shares fell across the board after data showed French Purchasing Managers Indexes (PMI) shrinking at the fastest pace in four years in March.
Asia’s physical gold market was quiet as buyers moved to the sidelines after prices broke above $1,600 earlier this week.
As a gauge of investor interest, holdings of SPDR Gold Trust , the world’s biggest gold-backed exchange-traded fund, stood unchanged from a day earlier at 1,222.162 tonnes on Tuesday, after posting the first daily inflow since early February in the previous session.
In other news, the right-wing Swiss People’s Party (SVP) has gathered enough signatures to force a referendum on a proposal to ban the country’s central bank from selling any of its gold reserves.
Precious metals with industrial applications firmed up slightly, tracking the strength in base metals, after data showed a pickup in the growth of China’s vast manufacturing sector.
Spot silver gained 0.5 percent to $28.89. Platinum rose 0.2 percent to $1,577 and palladium was unchanged at $756.53.
Switzerland’s palladium exports jumped last month to their highest since September 2008, Swiss customs office data showed, while the country became a net importer of platinum after exports fell to a six-month low. (Additional reporting by Rujun Shen in Singapore; Editing by Veronica Brown and Alison Birrane)
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