Gold near three-week high on U.S. data, fund inflows

SINGAPORE (Reuters) – Gold extended gains on Thursday to a three-week high on hopes the Federal Reserve may not scale back its commodities-friendly bond buying soon, and as holdings at the world’s top gold-backed exchange traded fund (ETFs) rose for a second time in a week.

Traders shrugged off tighter import rules in India and outflows from other gold ETFs, pushing up prices for a sixth session out of seven on the prospect of rising demand from investors and physical buyers.

Outflows from the eight biggest gold ETFs tracked by Reuters have totaled nearly 20 million ounces, or $27 billion, so far this year. Rare inflows tend to boost market sentiment.

“What is important is that the outflows have slowed,” said Han Pin Hsi, global head of commodities research at Standard Chartered Bank in Singapore.

“We are seeing signs that there is a little bit of confidence coming into the market. And we could be close to the bottom in terms of the ETF outflows,” he added.

Spot gold gained 0.3 percent to $1,337.69 an ounce by 0714 GMT (2:14 EDT). It hit $1,345.07 earlier – its highest since July 24.

U.S. producer prices were flat in July, which could add to worries at the Federal Reserve that inflation is running too low, indicating the U.S. central bank might not end its stimulus until inflation begins to trend higher.

The Fed risks pushing inflation even lower if it tapers bond purchases too aggressively, a senior central banker said on Wednesday.

Holdings of SPDR Gold Trust rose for the first time since June 10 last Friday and had remained unchanged before rising 0.23 percent to 913.23 tons on Wednesday, raising hopes that the worst of outflows from the fund is over. &lt-GOL/ETF&gt-

Quarterly reports from top U.S. hedge funds showed that many had reduced, and in some cases completely exited, their stakes in SPDR amid a sharp drop in prices this year. Longtime bull John Paulson halved his stake in SPDR.

Physical demand, however, seemed to be picking up with the recent stabilization in prices bringing back buyers.

Demand in India and China could each cross 1,000 tons this year, the World Gold Council said on Thursday. It also said overall gold demand fell 12 percent in the second quarter due to the outflows from ETFs.

Silver rose more than 1 percent to its highest in a month as holdings in the world’s largest silver-backed exchange-traded fund, iShares Silver Trust, rose to a four-month high.

Platinum rose to its highest in more than two months, while palladium hit its highest since late July.

(Editing by Muralikumar Anantharaman and Ed Davies)