Gold prices were steady on Friday as sellers were kept at bay by pledges from the world's central banks for co-ordinated policy action ahead of Greek elections this weekend that could determine its continued membership in the euro zone.

No Greek party has called for euro exit, but the leftist SYRIZA party, which is running neck-and-neck with the conservative New Democracy party, rejects the terms of a bailout struck in February, without which Greece will default.

Central banks said earlier they stood ready to provide liquidity and prevent a credit squeeze to deal with the risk of a Greek exit from the euro zone. European shares rose, while Spanish and Italian bond yields fell.

“Any chance of monetary easing is in the medium term positive (for gold),” said Credit Suisse analyst Tobias Merath.

“We think the cyclical environment is not so bad but we've seen a lot of profit taking in the last two months. Every time people expect more deleveraging of banks, less lending (they) sell assets (like gold) to generate cash.”

Spot gold was at $1,624.80 an ounce at 15:23 SA time against $1,622.30 late on Thursday.

Prices are set to rise nearly 2 percent this week after soft US data and speculation the euro zone crisis could hamper US growth fuelled talk of more quantitative easing from the Federal Reserve.

That would likely undermine the dollar and lead to fresh volatility in the currency markets, potentially boosting interest in gold as an alternative asset. It tends to benefit from weakness in the US currency, in which it is priced.

US data out earlier showed a gauge of manufacturing in New York state fell sharply in June, and while it still showed growth, it was the latest data pointing to a sluggish economy in the US

“The next big event in the gold world is likely to be the Greek election,” HSBC said in a note. “Gold may be caught between the election and US monetary expectations.”

US gold futures for August delivery were up $3.90 an ounce at $1,623.50.


From a chart perspective, analysts who study past price patterns for clues as to the future direction of trade identify resistance for gold at $1,641 an ounce. “Above there opens our $1,700 target,” Barclays Capital said in a note.

The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust in New York, said its holdings rose just over 3 tonnes on Thursday, their biggest one-day increase since June 1.

Among other precious metals, silver was up 0.2 percent at $28.65 an ounce. The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose back towards its 2012 high as gold outperformed.

Investors' confidence in silver was battered by two sharp corrections last year, which saw the metal lose a third of its value in the six sessions after it hit record highs in April, and fall 36 percent in three days in September.

Spot platinum was down 0.3 percent at $1,491.49 an ounce, while spot palladium was down 0.1 percent at $630.47 an ounce.

Platinum's ratio to gold ticked back up on Friday as gold prices outperformed, having dropped back from five-month highs earlier in June. Platinum prices have received little support from threats to South African mine supply, which is being hampered by low metal prices.

“Platinum prices need to rise to around $1,650 an ounce in order for South African platinum producers to be profitable,” Natixis said in a weekly report.

“Lower prices will lead to a protracted period of cutbacks and restricted development which will bring the market back into equilibrium via a slowdown in future supply.” - Reuters