SINGAPORE: Gold steadied on Wednesday after striking a 5-month low in the previous session, with investors awaiting more US data to see whether a reduction in the Federal Reserve's monetary stimulus is likely this month, which would reduce gold's attraction as a hedge against inflation.
Spot gold had eased 0.2 percent to $1,221.64 an ounce by 0325 GMT. It traded in a narrow range on Tuesday slipping to $1,215.60 - fresh lows since early July - despite weakness in equities and the US dollar.
Analysts say prices are set to decline further, most likely below $1,200 an ounce as there are no supporting factors.
"The failure to go any higher than $1,226 per ounce (in the previous session) despite a weaker dollar is yet another sign of weakness," said Joyce Liu, investment analyst at Phillip Futures Pte Ltd.
"Prices are likely to continue trading in a tight range below $1,226. There is a lack of support at least until $1,195."
Strong US manufacturing data sent the metal down sharply earlier this week as markets believe a recovering economy would prompt the Fed to slow down the pace of its $85 billion in monthly bond purchases.
Data on US GDP and nonfarm payrolls is expected later this week and should provide clues about the stimulus outlook just ahead of the Fed's next policy meeting in Dec. 17-18.
The Fed's money-printing for bond purchases has [played a key role in pushing gold prices higher over the last few years as they burnish the metal's appeal as an inflation hedge.
However, a recovering US economy has prompted talk of an end to the stimulus measures and shifting of investor money to equities from the safe-haven gold.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 1.80 tonnes on Tuesday to 841.41 tonnes - their lowest since early 2009.
A record outflow from the fund this year of 460 tonnes has helped fuel a 27 percent decline in gold prices since the start of the year.
Physical buying, which tends to provide a floor to prices, has failed to pick up in a big way in recent weeks as most consumers had bought a lot more than necessary during earlier price drops this year.
They are now waiting on the sidelines expecting further declines in prices, according to dealers.
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