* Fed's Bernanke anti-inflationary remarks pressure gold
* Gold slips as dollar lifts from lows vs euro after Fed
* Bernanke: U.S. economic outlook improving
(Recasts, updates with quotes, closing prices, changes
dateline, pvs LONDON)
By Frank Tang
NEW YORK, July 21 (Reuters) - Gold futures ended slightly
lower on Tuesday as U.S. Federal Reserve Chairman Ben
Bernanke's strong resolve to battle inflation could prompt
bullion investors to take profits in the near term.
In a semiannual report on the economy to the U.S. Congress,
Bernanke sought to dispel concerns the U.S. central bank's
aggressive monetary easing could end up fueling inflation,
saying he was confident the Fed could pull back its
extraordinary stimulus when the time was right.
[]
"Bernanke's comments may have allayed some issues on
inflation, reassuring the market and investors that the Fed
would be vigilant," said James Steel, chief commodities analyst
at HSBC in New York.
"That might have helped put pressure on the gold today and
might have helped cap rally that we have seen earlier this
week," he said.
In June, gold rose toward the $1,000 per ounce level on
heightened worries about potential inflation after central
banks around the world pumped massive liquidity to battle one
of the worst economic crises since the Great Depression.
However, the metal has been weighed down by the prospect of
deflation, or a downward spiral in prices, amid an uncertain
economic recovery.
U.S. August futures <GCQ9> settled down $1.90 at $946.90 an
ounce on the COMEX division of the New York Mercantile
Exchange.
Spot gold <XAU=> was at $947.70 an ounce at 3:25 p.m. EDT
(1925 GMT), against $948.35 in its previous session finish.
Bernanke also said that the outlook for the long-suffering
U.S. economy was improving, but supportive policies would be
needed for some time to prevent rising unemployment from
undercutting recovery. []
On Monday, gold prices rallied above $950 an ounce to the
highest level in more than a month a sharp dollar decline
boosted bullion's appeal as a hedge against the U.S. currency.
The dollar pared losses against the euro <EUR=> after
Bernanke, in his testimony to the House of Representatives,
said job losses remain high and the Fed's accommodative
monetary policy could stay for an extended period. []
"The most noticeable change for gold has been the stronger
correlation with the dollar," said Standard Chartered analyst
Daniel Smith. "We went through a stage when the correlation was
negative and now it's pretty strongly positive."
The testimony curbed risk appetite, diverting interest from
currencies seen as higher risk. Gold is often bought as an
alternative asset to the dollar and tends to move in the
opposite direction to the U.S. currency.
ANALYSTS BULLISH
However, other analysts still expect inflation to be the
next major driver to back gold's rally.
French bank Calyon <CAGR.PA> forecast gold prices to
average $935 an ounce this year, rising to $975 in 2010 and
$1,025 in 2011, with the price rise driven by dollar weakness
and sharp gains in inflation. []
"The two primary drivers we see pushing gold higher are a
weaker dollar... and massive injections by central banks of
liquidity to support economic growth," said Calyon metals
analyst Robin Bhar.
"This unconventional monetary policy is inflationary."
With physical demand for gold from both jewelers and
investors still sluggish over the seasonally weak summer
months, traders awaited fresh direction from the currency
markets.
Silver <XAG=> was at $13.54 an ounce, platinum <XPT=> was
at $1,168.50 an ounce against $1,180, and palladium <XPD=> was
at $254 an ounce from $252.
In mining news, South African gold producers raised their
pay offer for miners, averting a possible strike for now, the
mineworkers unions said. Talks will resume on July 28.
[]
(Additional reporting by Jan Harvey and Pratima Desai; Editing
by Marguerita Choy)
