LONDON: Gold edged lower on Tuesday, as the dollar steadied and traders shied away from taking big bets ahead of a Federal Reserve meeting being closely watched for the US stimulus programme.
The Fed starts its two-day policy meeting on Tuesday and is expected to release a statement on Wednesday afternoon. Markets are watching this for clues on when the US central bank will start to taper or reduce its $85 billion monthly bond purchases.
Spot gold fell 0.3 percent to $1,322.51 an ounce by 1017 GMT, extending Monday's downside that snapped three weeks of gains. US gold futures for August fell $6.50 to $1,321.90 an ounce.
Prices regained the $1,300 level for the first time in a month last week, buoyed by remarks from Fed chief Ben Bernanke that a highly accommodative monetary policy is needed for the foreseeable future and that any reduction in bond purchases is not set in stone and depends on the strength of the economy.
The Fed had previously said it would likely begin reducing its stimulus later in 2013 and halt it altogether by mid-2014, which strengthened the dollar, making assets priced in the greenback such as gold more expensive for foreign investors.
"There were initially very strong reactions to the idea of tapering... but the Fed is now trying to persuade people that ok they may taper QE3 but fundamentally that does not change the stance on monetary policy and rates will remain on hold for a protracted period," Natixis analyst Nic Brown said.
The dollar inched above a five-week low hit in the previous session, but was lower against the euro after eurozone consumer sentiment data showed improvement in July. Benchmark US 10-year Treasury yields were above 2.5 percent.
In addition to the Federal Reserve, the European Central Bank and the Bank of England also hold policy reviews this week.
Investors are also waiting for second quarter US growth data due on Wednesday and the influential US jobs report for July on Friday.
"If you see some more dovish comments from European central banks this week and a stronger employment number in the United States, you'll get some strengthening in the dollar and Treasury yields, which would be bad news for gold," Brown said.
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