London- Gold fell on Tuesday as the dollar rose and traders took to the sidelines ahead of a Federal Reserve policy meeting they hope will give greater clarity on the outlook for US monetary policy.
The dollar rose against a basket of currencies, and equity markets held within tight ranges as uncertainty over the future of the US monetary stimulus program kept investors on edge, helping push gold prices lower.
Spot gold was down 0.8 percent at $1,373.55 an ounce at 15:43 SA time, while US gold futures for August delivery were down $10.20 an ounce at $1,372.90.
The Fed meets this week amid intense speculation that it may rein in its $85 billion-a-month bond-buying programme after firmer-than-expected economic data this year and as stock markets rallied.
The programme, part of the Fed's quantitative easing (QE) policy to stimulate US growth, has helped drive gold prices to record highs in recent years by keeping up pressure on long-term interest rates and stoking inflation fears.
Concerns that this policy may be reined in have helped knock gold prices 18 percent lower this year. Gold analysts say that move may have become overdone, however.
“Gold is trading weaker on the fear that the FOMC may reduce the volume (of quantitative easing),” Peter Fertig, a consultant at Quantitative Commodity Research, said.
“But if anything they will be scaling out gradually, there will not be an abrupt end to QE.”
He added, “There will be a point in time when the Fed is not going to provide more stimulus by buying bonds at the pace it has been. It's a question of time, (but) I don't expect it to be now,” he said.
INDIAN, CHINESE BUYERS HOLD OFF
Physical demand retreated in India and China, the top two consumers of bullion, from peak levels reached after a steep sell-off in April.
“There is not much buying interest. The sentiment right now is low,” a trader in Hong Kong said.
Another Hong Kong trader said premiums there had fallen to $2 an ounce over London spot prices, from a high of $6 last month. Hong Kong sells mainly to buyers in China.
Any signs of a significant slowdown in the Chinese market would be a big blow to bullion prices because investors expect China to offset slower buying from India.
Demand in India has eased since the government increased the import duty on bullion by a third in an effort to reduce its current account deficit.
Among other precious metals, silver was down 0.2 percent at $21.78 an ounce, while spot platinum dipped by 0.2 percent to $1,427.24 an ounce and spot palladium fell 1.3 percent to $703.47 an ounce.
Platinum group metals, which are used in chiefly catalytic converters, came under pressure after data showed that European car sales plunged to their lowest in two decades for the month of May, further eroding manufacturers' hopes of a recovery this year. - Reuters