London - Gold held steady on Wednesday ahead of the outcome of the latest Federal Reserve policy meeting, as traders awaited further guidance on the future of the US central bank's quantitative easing programme.
Fed Chairman Ben Bernanke said last month the bank could scale back its $85 billion monthly bond purchases if the US economy strengthens, but a lack of clarity on the timing has unsettled markets.
Policymakers will likely announce later that they will keep buying bonds at the same pace, while keeping their options open to scale back the programme later this year if the US labour market continues to improve.
Spot gold was at $1,367.81 an ounce at 11:23 SA time, little changed from $1,367.09 late on Tuesday, while US gold futures for August delivery were flat at $1,367.20.
Gold broke below its recent trading range on Tuesday to slide 1.2 percent, its biggest one-day loss in nearly two weeks.
“Gold had been under pressure in thin trading with expectations about a QE3 tapering making the rounds for some time now,” Heraeus precious metals trader Alex Zumpfe said.
“We expect gold to continue trading on the lower end of its current range, keeping a wait-and-see-stance with a weak bias until the FOMC comments come out.”
Gold prices are finding support at last week's low near $1,365, but a breach of that level could send them tumbling back to their April low at $1,321, according to chart analysts.
For the moment, gold is holding steady in line with other markets.
European shares, major currencies and commodities were little changed as investors awaited clarity on the Fed's next policy step.
“The FOMC statement is still likely to highlight recent improvements in the labour market, potentially once again suggesting a gradual reduction to the QE3 pace in the very near future,” VTB Capital said in a note.
“Any hints at this time frame will be one of the most eagerly awaited insights for the currency markets and, eventually, for gold.”
PHYSICAL DEMAND SLUGGISH
Buying in India and China, the top two gold consumers, remained sluggish as demand eased from peak levels seen in April and May. Shanghai gold futures fell more than 1 percent, while Indian gold futures edged lower.
Holdings of the SPDR Gold Trust, the largest gold-backed exchange-traded fund, fell 0.2 percent to 1,001.67 tonnes on Tuesday, their lowest in more than four years.
Among other precious metals, silver was flat at $21.61 an ounce, while spot platinum was down 0.1 percent at $1,438.24 an ounce and spot palladium was down 0.1 percent at $707.22 an ounce.
Platinum and palladium have underperformed this month to fall 1.5 percent and 5.5 percent respectively, although palladium remains the best performer of the major precious metals this year.
“Industrial interest has somewhat helped to protect the downside in PGMs, but with the entire precious metals complex under pressure at the moment, prospects for a recovery in the near term appear limited for now,” UBS said in a note.
“Yet, despite the correction, underlying sentiment towards PGMs has not soured. In a sense the washout has actually been welcomed and is deemed healthy,” it added.
“Those who have caught the move lower are keeping a very close eye out for opportunities to close out shorts or re-establish longs.” - Reuters