Gold gains on buzz falling prices may spike demand

SINGAPORE | LONDON: Gold gained in New York on speculation that demand may be spurred by the price slump to a 2 1/2-year low that followed the US Fed's indications on cutting stimulus.

Futures fell 6.9% last week after Fed Chairman Ben S Bernanke said the US central bank, which buys $85 billion of Treasury and mortgage debt a month, may slow its asset purchase program if the US economy continues to improve. Gold neared a technical level that signals to some analysts that prices may rebound. Russia and Kazakhstan were among nations that expanded bullion reserves in May, IMF data show. Bullion slid 23% this year as some investors lose faith in it as a store of value and as speculation grew that the Fed will taper debt-buying that helped the metal cap a 12-year bull run last year.

Morgan Stanley lowered its forecasts for prices and said waning investor interest has turned more serious on the prospect of less stimulus that's pushed up bond yields and strengthened the dollar.

“Although we expect a positive physical demand response to eventually cushion gold’s drop, we do not believe it will be of the scale or magnitude of the reaction in April,” James Steel, an analyst at HSBC Securities (USA), wrote in a note.