Gold price bounces off $1,300 as ETF liquidation persists

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The gold price continued to build on  recent gains on Friday, but again fell just short of the crucial $1,300 an ounce level.

Gold futures were changing hands at $1,294.20 in  afternoon trade, after earlier hitting an intra-day high of $1,298, following by the US Federal Reserve Chairman Ben Bernanke in front of the US Congress and Senate.

Bernanke dispelled some of the fears of gold investors about the future of monetary policy in the world's largest economy saying it is "way too early" to make a judgement on ending the bank's quantitative easing program.

The Fed is eager to throttle back asset purchases, which adds $85 billion of cheap money to financial market each month, at the first signs of a solid economic recovery in the US or the emergence of inflation.

Despite Bernanke's soothing words on continued economic stimulus, worries that the Fed may start to dial back its asset buying program early, appears to have put a ceiling on the gold price as it attempts to recover from near 3-year lows hit late June.

An end to the  quantitative easing program would strengthen the dollar and tarnish gold's status as a storer of wealth.

Gold solid performance over the past two weeks also comes despite continued selling of gold-back exchange traded funds.

This week gold ETF holdings fell more than 3 tonnes to 1,979 tonnes, the lowest since May 2010 according to Bloomberg data.

The outflows equate to more than $60 billion wiped off the value of the  world's more than 140 gold-backed ETFs.

Gold bullion holdings hit a record 2,632 tonnes or 93 million ounces in December 2012.

The emergence of the gold ETF industry – more than 140 funds are listed around the world including two newly launched funds in China – has been a big factor in gold's uninterrupted 12-year bull run, because ETFs make it so easy to invest in the yellow metal.

The banner year for gold ETF investment was at the height of the global financial crisis in 2009 when investors added 651 tonnes to holdings.

When the first gold-backed ETF was introduced in Australia in 2003, the price of gold was around $320 an ounce.

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