NEW YORK: Gold prices seesawed on Tuesday, as investors waited for the outcome of a US Federal Reserve policy meeting which could signal new monetary stimulus, a move that will likely power the metal's recent rally.
Bullion is building on a seven-day rally as investors sought refuge on signs of a worsening euro zone debt crisis. Spain on Tuesday had to pay a euro era record price to sell short-term debt, underlying the region's troubles run much deeper than Greece.
The metal's appeal as a hedge against economic uncertainty could also rise when the Fed issues its policy statement at the end of a two-day meeting on Wednesday. Economists said the US central bank could extend its effort to drive down borrowing costs instead of committing to a new stimulus program.
"Gold has shown itself to be very sensitive to shifts in expectations of US monetary policy. If the Fed states that it is prepared to ease policy further if the economy should weaken, this may be sufficient to support gold prices," said James Steel, chief commodity analyst at HSBC.
Spot gold was down 0.1 percent at $1,625.55 by 11:29 a.m. EDT (1529 GMT). Prior to Tuesday, the metal had gained around 3 percent during its seven-day winning streak.
The market is still a long way off the record seen last year at $1,920.30 an ounce.
US gold futures for August delivery inched down 30 cents an ounce at $1,626.70.
Poor US jobs data early this month prompted talk the Fed could be pushed into a third round of quantitative easing (QE3).
The metal had rallied as much as 15 percent after the Fed in January said it would keep interest rates near zero until at least late 2014. Gold has since tumbled several times, however, after Fed Chairman Ben Bernanke mentioned no further easing in his congressional testimonies.
Year to date, gold is up about 4 percent.
"Clearly the shift towards easier money is much more necessary now than it was three months ago. That's good news for gold," Adrian Day, president of Adrian Day Asset Management, said.
"I don't think there's going to be another huge program that people can call QE3, but the (Fed) will probably renew the Twist programme," he added.
Given a US outlook that is weak but not recessionary, the Fed could opt for extending "Operation Twist," its effort to drive down long-term borrowing costs by selling short-term securities to buy longer-term ones, economist said.
Among other precious metals, silver was down 0.7 percent at $28.52 an ounce, while spot platinum was up 0.5 percent at $1,483.25 an ounce, and spot palladium as down 0.4 percent at $624.42 an ounce.
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