Picture: REUTERS
Picture: REUTERS

LONDON — Gold extended gains into a second session on Thursday after the nominee for Federal Reserve chairman, Janet Yellen, suggested the central bank would continue with monetary stimulus measures.

Ms Yellen, in remarks prepared for her nomination hearing before the Senate banking committee later on Thursday, said the US jobless rate was still too high and that both the labour market and economy were performing "far short" of potential.

Spot gold rose 0.4% to $1,283.60 an ounce by 10.48am GMT, after snapping a four-day losing streak on Wednesday with a gain of nearly 1%.

"Gold has strengthened after a dovish statement from Yellen signalling that she would allow the economy to continue to grow before tapering," Natixis analyst Bernard Dahdah said.

"But I expect the dollar to keep rising in the next few weeks and this rebound of gold to be temporary, because if the economy improves, the opportunity cost of holding gold would increase."

US gold futures for December delivery advanced as much as 1.2% to $1,283.10 an ounce.

The dollar index held steady versus a basket of currencies, but yields on US 10-year Treasury bonds fell to 2.7%, compared with a near two-month high of 2.792% hit earlier in the week.

Given that gold pays no interest, movements in returns from US bonds are closely watched by the bullion market and also affect the US currency.

The Fed’s $85bn in monthly bond purchases have been a major support for gold prices in recent years as a hedge against inflation.

Bullion prices have lost a fifth of their value this year after the central bank suggested that it could begin tapering its monetary stimulus soon, depending on the strength of the economy.

A run of mixed US data over the past few months, however, has had investors constantly second-guessing the central bank’s intentions, increasing the volatility of gold prices.

In another gauge of investor sentiment, outflows from SPDR Gold Trust, the world’s biggest gold-backed exchange-traded fund, resumed on Wednesday after pausing the previous two weeks.

Holdings in the fund fell 2.71 tonnes to a fresh four-year low of 865.71 tonnes. They had remained largely unchanged for most of November on uncertainty over the stimulus.

Demand for the physical metal had picked up as gold traded below $1,300 an ounce but had not been strong enough to provide upward impetus to prices, traders said.

The World Gold Council on Thursday cut its outlook for Indian demand in 2013 to about 900 tonnes from the 1,000 tonnes predicted previously as strict import rules introduced by New Delhi begin to bite, while keeping its forecast for China unchanged at 1,000 tonnes.

Silver rose 0.8% to $20.75 an ounce.

Spot platinum was up 1.1% at $1,446.24 an ounce on continued supply disruptions in top world producer South Africa.

Spot palladium rose 0.9% to $736.25 an ounce.