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Jewelry Demand Aids Gold

The start of India's wedding season helps the yellow metal build on prior session's gains.

Updated from 11:28 a.m. EDT

Gold added to Wednesday's gains Thursday, buoyed by robust jewelry demand.

Contracts for December delivery of bullion closed up $7.60 at $610.90 an ounce on the Comex division of the New York Mercantile Exchange.

"We're moving into the wedding season for India," says Kona Haque, senior commodities economist at the Economist Intelligence Unit in London. "I don't think higher prices will affect demand in India; it's quite price-inelastic."

Elsewhere, the Commerce Department revised its estimate of second-quarter U.S. economic growth down to 2.6% from 2.9%. That compares with first-quarter growth of 5.6%.

The news didn't weigh too much on investors and the greenback rallied modestly in response, possibly dampening activity in the yellow metal.

The dollar was recently buying 117.882 yen up from 117.50 yen late Wednesday, and was gaining modestly vs. the euro, which was trading at $1.2700 compared to $1.2703 previously.

The price of bullion and the U.S. currency tend to move inversely. That relationship has many metal market observers hopeful that the

Federal Reserve

will react to lower economic growth by lowering short-term interest rates in the future. Such a move would likely weaken the U.S. dollar and boost bullion prices.

Not everyone, however, is so convinced that the Fed will have the flexibility to loosen monetary policy.

"We continue to believe the bond market is making a bum bet on the potential for Fed rate cuts next year," writes Michael Darda, chief economist at MKM Partners, who believes that underlying inflation will remain a problem for policy makers.

That may still be good news for gold bulls as bullion is often purchased as a hedge against inflation.

Meanwhile, technical analysts note that the recent strength will need to be sustained for a while before a more significant rally can take place.

"We are just observing a bounce from deeply oversold conditions in the metals markets," says Peter Spina, a technical analyst with "We need to see gains extended before one can become bullish in the short term."

Among the miners,

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The exchange-traded funds that hold gold bullion,

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, were up 0.5% mid-afternoon.

Other news shows that price volatility isn't shaking investors out of the precious metals patch yet, with flows into specialty precious metals funds totaling $610 million in July, according to new data released by Boston-based Financial Research Corporation. That compares favorably with June and May, which saw net inflows of $407 million and $495 million, respectively.

The major beneficiaries in July were

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taking in $105 million.

In base metals, copper was softer with Comex December contacts tumbling 5.9 cents to close at $3.428 a pound. The outlook, however, looks likely to remain firm in the medium term.

"For copper, there is still a tight supply situation," says EIU's Haque.

U.S. miner

Phelps Dodge

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was losing slightly, 0.3% lower.

In the ferrous metals sector,

U.S. Steel

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was melting on reports of a softening steel market by World Steel Dynamics, a New Jersey-based specialty consulting company, off 1.9% recently.

Mittal Steel

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was, however, rising 1.8% following company confirmation that it will divest Dofasco unit, or failing that cut certain U.S. operations to satisfy a Department of Justice consent decree.

Also rising in steel were shares of


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following news that the company would build a 45,000 ton capacity "metal building systems and components" plant in Brigham City, Utah. The stock was up 0.8%, after morning weakness.