Gold continued to notch up small gains on commodity charts Friday, pushing its winning streak into its sixth session as traders reacted to poor US data which is serving to boost expectation of Fed intervention.

“Gold continues to push up and we can expect support to be maintained through the day as investors look to hedge against a Greek implosion”, Simon Denham of Capital Spreads said in an emailed note. “This said, anything indicating a suitable settlement in Athens may well send Gold back to the mid/low 1500’s in very short order.”

Investors are wary of those who will be visiting Hellenic polling stations over the weekend, with many analysts currently unclear as to how the outcome of the vote is likely to affect the euro - not to mention the euro zone in general. But despite bullion having so far benefitted from global uncertainty as the safe-haven commodity of choice for many traders, some are now asking how long the shine can last.

Fed unlikely to embark on QE

Despite the sluggish data from the world’s largest economy in recent weeks – consumer spending fell for the second consecutive month it was revealed Wednesday, while unemployment stands at 8 percent – Fed Chairman Bernanke gave precious little hope to investors hoping for a third round of QE. “The Fed is unlikely in my view to embark on more QE any time soon”, Mitul Kotecha (pictured), Head of Foreign Exchange Strategy at Crédit Agricole CIB, commented. “Bernanke dampened such hopes in his speech to Congress, in which he did not indicate a desire to move towards more QE.

“Clearly, should the Fed implement more QE it will help to renew the attraction of gold. Once again markets will see the consequences of Fed QE as a means to debase the USD.” But, Kotecha adds, the slow upward crawl of gold over the last six sessions is due for a reversal if QE is not forthcoming. “A shift in Fed stance cannot be ruled out if US economic conditions worsen further and/or the Eurozone crisis escalates. Assuming no more QE and no more USD debasement, gold prices ought to decline over coming months.”

A report released by the Labor Department Thursday showed that consumer prices in the US fell 0.3 percent in May after flatting in April. In theory, this easing of inflation would be the kind of impetus Bernanke would look for in order to engage in a further round of QE.  But analysts at top banking institutions such as JP Morgan are suggesting that the most likely course of action is an extension of Operation Twist and a re-focus on mortgage-backed securities in order to diversify their portfolio as opposed to the QE that would favour gold.

Precious commodity limited by Indi, China slowdown?

Another indicator that has set gold speculators twitching is slowing demand from major gold purchasing nations such as India and China. Both the emerging nations’ economies have suffered of late, with growth slowing more than expected in both nations over the course of Q1 this year. “While I certainly do not expect a collapse in demand from either country I have no doubt that compared to last year the strength of demand will be softer over coming months”, Kotecha added.

“Although I still look for a soft landing in China the Indian economic picture has clearly deteriorated while the Indian rupee has weakened.” That weaker rupee is making it increasingly expensive to import gold to India for domestic purposes and is likely to help keep propel any decline in the precious commodity.

Gold is likely to hold on to its market position for as long as the uncertainty over the future of the euro zone and global growth continues to rumble on, but many analysts are arguing that this can only occur with a lower dollar through Fed engineering. A tendency towards risk aversion is likely to provide little assistance to gold if the USD is allowed to weaken, and Kotecha forecasts a drop in gold prices to around USD 1475 by the end of the year if that scenario occurs.

Sarah Cox. Markets Writer, ForexSpace.com.