SINGAPORE: Gold reversed early losses to edge higher on Wednesday as traders awaited more clarity from the US Federal Reserve on whether it would begin curbing its commodities-friendly economic stimulus from next month.
Sentiment towards the precious metal among investors and traders seems to be more positive now than what it was earlier this year as many believe the worst is over and have begun injecting money again into gold-backed funds.
Bullion has lost nearly a fifth of its value this year on stimulus worries and outflows from exchange traded funds (ETFs). It fell to a three-year low of $1,180.71 an ounce in June but has since recovered about $200.
Spot gold inched up 0.1 percent to $1,372.24 by 0250 GMT and was near two-month highs.
"Our clients are tempted to add more exposure to gold," said Helen Lau, senior analyst for China's commodities sector at UOB-Kay Hian. "It's because of the recent gold price increase, US dollar weakness and strong consumer demand in China."
"Certainly they are not bearish on gold any more. We now think the downside pressure (on gold prices) is very limited."
Several brokerages, including Goldman Sachs, have cut their price outlook for gold since the beginning of the year. But ANZ on Tuesday was one of the first to lift its forecast.
"We have revised our precious metal forecasts higher near-term as the rebound since the end of June has occurred earlier than we originally anticipated," ANZ analysts wrote. They raised their year-end price forecast to $1,380 from their earlier view of $1,300.
"The bounce in gold prices appears to be more sustainable - coinciding with a reversal of ETF outflows. We also see little downside to physical demand, with China continuing to buy strongly," the analysts wrote.
Demand from China and India is expected to hit 1,000 tonnes each this year, according to the World Gold Council.
SPDR Gold Trust, the world's largest gold-backed ETF, has seen about 400 tonnes in outflows so far this year. However, it has seen some inflows over the last two weeks.
FED UNCERTAINTY
Markets are waiting for the release on Wednesday of minutes from the Fed's July policy meeting for clues on the timing of stimulus tapering.
The US central bank has said that it would begin scaling back its $85 billion in monthly bond purchases this year if the economy recovers as expected. But Fed officials are not in consensus on whether they should cut back from September as expected by the markets.
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