Gold Slips Ahead of Fed on Stronger Dollar, Fund Outflows

Bareksa.com - Gold edged lower on Wednesday as a firmer dollar and outflows from bullion funds sapped demand, with many investors waiting on the sidelines for the U.S. Federal Reserve to conclude its policy meeting before placing big bets on the metal.      

Spot gold slipped 0.2 percent to $1,268.75 an ounce by 0315 GMT, after ending flat in the previous session. The metal hit a three-week high of $1,284.85 on Monday due to violence in Iraq, but prices have since fallen back. 

The Fed is widely expected to chop another $10 billion from its monthly bond purchases at its two-day policy meet that concludes on Wednesday. 

Markets will be watching closely for any commentary on when the U.S. central bank would begin to raise interest rates and its outlook for the economy, especially given that recent data
has been strong.

"We remain cautious about gold going into the Fed meeting on Wednesday as hints of rate rises could trigger more dollar strengthening and prove to be an overall drag on the precious
metals group," said Edward Meir, analyst at INTL FCStone.

"Geopolitical headlines still have the capability to spark prices higher, but for the moment, we think Fed uncertainties will dominate," Meir said.  

The U.S. dollar climbed in tandem with rising Treasury yields on Wednesday as a surprisingly high reading for U.S. inflation threatened to give a hawkish tilt to the Fed's policy
outlook later in the session.   

Investor sentiment in bullion is bearish as reflected in flows in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund. Holdings in the fund fell 0.26 tonnes to
782.62 tonnes on Tuesday - a second straight day of declines.   

The fund, considered a proxy for investor sentiment, posted its biggest outflow since mid-April on Monday.   

Physical markets in Asia have also not been able to boost prices.  

In top buyer China, gold prices were trading either at a discount of about $1 an ounce or on par with the global benchmark, in a sign that buying interest is weak.   

Gold premiums in India - the world's second-biggest gold buyer - fell to their lowest in four months as wedding demand cooled off.   

Platinum and palladium edged higher as South Africa's platinum producers and union AMCU agreed on a broad wage offer to end a protracted strike. Details such as the time frame and additional benefits are still outstanding, a producer said on Tuesday. 
    
    PRICES AT 0315 GMT    
 Metal                                               Last        Change   Pct chg
                                              
 Spot gold                                        1268.75      -2.44     -0.19
 Spot silver                                          19.66      -0.03     -0.15
 Spot platinum                                  1434.75       2.25      0.16
 Spot palladium                                  816.25       2.95      0.36
 Comex gold                                     1269.4        -2.6       -0.2
 Comex silver                                      9.695     -0.037     -0.19
 Euro                                                 1.3546                   
 DXY                                                  80.606                   
                                              
 COMEX gold and silver contracts show the most  active months (Source : Reuters)