Gold edges down, investors cautious ahead of Fed

REUTERS: Gold fell on Wednesday as physical buying slowed down for holidays in China and parts of Europe, and as investors waited to see if the U.S. Federal Reserve sticks to its stimulus programme to spur the economy.

The Fed’s policy-making committee ends its meeting later in the day and is widely expected to keep the current pace of bond buying at US$85 billion a month due to recent weak economic data. Gold fell 0.5% to US$1,469.46 an ounce by 0931 GMT.

U.S. gold futures for June delivery were down 0.2% to US$1,469.50 an ounce.“The market is holding back a little with China and most European countries closed and nobody is going to take the lead ahead of the FOMC and U.S. employment figures, which will be very critical as they will give us fresh direction,” MKS Capital Vice President Bernard Sin said.

The dollar eased against a basket of main currencies as investors warily awaited the outcome of the U.S. Federal Reserve’s policy meeting, while expectations that the European Central Bank will cut interest rates on Thursday capped the euro.

Accommodative policy is generally seen as supportive for gold, because printing of money tends to be inflationary, but traders noted that inflation readings have been lower recently.

“Gold seems to pick up steam either as a result of turmoil in the financial markets or on the back of higher inflation readings, neither of which seem to be prevalent at this particular time,” INTL FC Stone said in a note.

Investors will also closely watch U.S. non-farm payrolls on Friday.

“A slight dovish tilt in the FOMC’s tone would be good for gold, as would a disappointing employment number,” UBS analyst Joni Teves said in a note.

“But on the employment front, the risk is that non-farm payrolls are expected to have recovered in April which would potentially offset the positive impact of a more cautious FOMC,” she added.

Gold tumbled to US$1,321.35 on 16 April, its lowest in more than two years, after a drop below US$1,500 sparked a selloff that stunned investors and prompted them to further slash holdings of exchange-traded funds.

SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.19% to 1,078.54 tonnes on Tuesday, the lowest since September 2009.

But gold has recovered more than half of its US$225 loss incurred between 12 and 16 April, boosted by strong physical demand, especially from top bullion consumers China and India.