Gold rebounds on crude oil gains, short-covering

Gold rose on Thursday, as gains in crude oil prices and short-covering triggered a rebound rally from the previous day's losses after the Federal Reserve chief said the US central bank still expects to start scaling back its monetary stimulus later this year.

Investors focused on bullion's inflation-hedge appeal as US crude oil rose to a 16-month high on encouraging US job market and manufacturing data, partially recovering from gold's 1.3 percent drop on Wednesday.

In his second day of congressional testimony, Fed Chairman Ben Bernanke affirmed that the Fed would likely reduce its program of buying $85 billion of bonds a month later in 2013 and halt it altogether by mid-2014, and he left open the option of changing stimulus exit plans if the economic outlook grew worse.

"A sustained positive move in gold likely requires a significant deterioration in US economic prospects, which may steady the Fed's hand from removal of monetary accommodation," said Robert Haworth, senior investment strategist at US Bank Wealth Management.

Otherwise, gold is likely to fall as continued liquidation by speculators overwhelms strong physical demand from China and India, Haworth said.

Spot gold rose 0.8 percent to $1,285.21 by 2:24 p.m. EDT (1824 GMT).

US gold futures for August delivery settled up $6.70 to $1,284.20 an ounce, with trading volume about 30 percent below its 30-day average, preliminary Reuters data showed.
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