NEW YORK (Reuters) - Gold edged up in quiet trading on Monday as weak U.S. retail sales cut into the dollar's gains ahead of Federal Reserve Chairman Ben Bernanke's Congressional testimony which will provide the latest clue on U.S. monetary policies.
Bullion recovered from early losses as the dollar fell on data showing U.S. retail sales fell for a third straight month in June. as demand broadly slumped. Gold also was helped by the International Monetary Fund on Monday cutting its global growth forecast.
The rally in grains due to a severe drought in U.S. Midwest and crude oil's gains after news a U.S. Navy vessel fired on a small boat in the Middle East added to gold's investment appeal.
Trading volume was light as investors await Bernanke's two days of testimony before Congress on Tuesday. A weak June payrolls report and other signs the U.S. economy is slowing have increased speculation the U.S. central bank will use monetary policies to boost growth.
"If he doesn't say anything against tightening, I believe it's going to increase the likelihood of stimulus. The gold market is going to attach itself to that and get appreciation," said Jeffrey Sica, chief investment officer of SICA Wealth which manages over $1 billion in assets.
Spot gold was up 0.2 percent at $1,592.69 an ounce by 2:09 p.m. EDT (1809 GMT).
U.S. COMEX gold futures for August delivery settled down 40 cents at $1,591.60 an ounce. Trading volume was around 30 percent below its 30-day average, preliminary Reuters data showed.
A quarterly Reuters poll showed gold experts have further cut back price forecasts for the metal this year after a sluggish first half, while gains in the dollar and a dearth of physical demand are likely to clip any attempted return to last September's record high for the rest of the year.
A voting member of the Fed's policy-setting body, Dennis Lockhart, said last week he had edged closer to supporting another round of easing if the economy floundered. However, another Fed official reiterated that there was no need for additional Fed actions. <FED/AHEAD>
Gold prices have stayed in a relatively tight $150 range between $1,525 and 1,67 for the last three months as the bullion market awaited clearer direction on U.S. monetary policy.
Further monetary easing would maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom, as well as weighing on the dollar.
"Right now, after the latest (Fed) meeting at the end of June and the disappointment there, I'm not pricing in any QE3 factor before the U.S. elections," LGT Capital Management analyst Bayram Dincer said.
Among other precious metals, silver was up 0.4 percent at $27.40 an ounce. Platinum eased 0.5 percent at $1,414.55 an ounce and palladium was down 0.2 percent at $577.75 an ounce.
Additional reporting by Rujun Shen in Singapore; Editing by Andrew Hay and Bob Burgdorfer