LONDON: Gold fell 1 percent on Tuesday as investors awaited the outcome of the latest Federal Reserve policy meeting, amid expectations that the U.S. central bank may be set to trim its bullion-friendly economic stimulus.
The Fed begins a two-day policy meeting on Tuesday. Most economists polled by Reuters this week expect it to taper its huge stimulus in March, although the odds on a move this month or next have shortened after a run of upbeat data.
Spot gold was down 0.8 percent at $1,230.30 an ounce by 1545 GMT, having hit a low of $1,227.44. U.S. gold futures for February delivery fell $13.50 an ounce to $1,230.90.
Speculation that the Fed will curtail its stimulus measures, which had driven bullion higher by pressuring interest rates and fuelling fears of inflation, have already pushed gold prices down 25 percent this year.
But some analysts cautioned that any eventual beginning of the end of U.S. stimulus was not likely to spell the immediate end to a cheap flow of dollars.
"They will reduce their bond purchases, that doesn't mean they will stop it completely," said Commerzbank analyst Daniel Briesemann.
He added that uncertainty over the timing of the taper was the main factor weighing on gold prices recently.
"If the Fed (comes) out with an announcement tomorrow that they are going to taper ... then I could imagine that we might see a knee-jerk reaction first, but this should only be short-lived because the uncertainty is gone and should pave the way for higher prices thereafter."
A run of well-received U.S. economic data, including November payrolls earlier in the month, has fuelled speculation that the Fed may taper its bond purchases sooner rather than later.
A rebound in the annual inflation rate in November from a four-year low was seen on Tuesday as the latest indicator that the U.S. recovery was gaining steam.
ASIAN CONSUMERS HOLD OFF
Consumers of physical gold in Asia held off fresh purchases in anticipation of lower prices.
Volumes on the Shanghai Gold Exchange this week have been subdued, with less than 10 tonnes per day traded for 99.99 percent purity gold, compared to last week's average of nearly 14 tonnes a day.
In India, buying remained low key due to non-availability of stocks, supporting premiums.
"The main problem for gold is that with Indian demand soft because of the weak rupee plus new import duties, the physical market is struggling to offset investor liquidation," Barclays Capital said in a note on Tuesday.
"Moreover, with investors having accumulated a lot of gold at around the $1,000 an ounce level, liquidation is likely to accelerate should prices look like breaking below this point," it added.
Investment demand for physical bullion was lacklustre, with the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Shares, posting its biggest daily outflow in nearly two months on Monday.
The fund's holdings were down 8.7 tonnes to 818.9 tonnes, their lowest in nearly five years.
Silver dipped 0.5 percent to $19.83 an ounce, while spot platinum fell 0.5 percent to $1,350.49 an ounce and spot palladium slid 1.1 percent to $705.50 an ounce.
Comments
Comments are closed.