SENSEX NIFTY
Apr 24, 2012, 02.31 PM IST | Source: Reuters

Gold edges down amid euro zone worries, Fed meeting eyed

Gold edged lower on Tuesday as investors waited for a US Federal Reserve meeting to shed some light on the central bank's monetary policy amid caution over a resurfacing crisis in Europe.

Gold edged lower on Tuesday as investors waited for a US Federal Reserve meeting to shed some light on the central bank's monetary policy amid caution over a resurfacing crisis in Europe.

The two-day Federal Open Market Committee meeting is scheduled to kick off later in the day. Though the Fed is expected to adopt a wait-and-see approach, its comments will be put under scrutiny as investors seek clues on possible quantitative easing measures.

"If the Fed fails to hint at more quantitative easing, we may see a sharp drop in gold prices," said Hou Xinqiang, ananalyst at Jinrui Futures in the southern Chinese city of Shenzhen. Expectations of further monetary easing pushed gold to near USD 1,790 an ounce in February, its highest since November.

But a string of upbeat economic data and less dovish comments from Fed officials have since shaved off gains and helped sink bullion to near USD 1,610 in early April. Spot gold inched down 0.1% to USD 1,635.49 anounce by 0624 GMT, after falling to USD 1,619.99 on Monday - its lowest since April 5. The USD 1,620-1,630 level has proved to be a key support region. US gold edged up 0.2% to USD 1,636.30.

"Gold's short-term outlook is lackluster, as the economic problems in Europe again triggered worries among investors and put pressure on financial markets, and gold is not spared," the Jinrui analyst said. Asian shares edged lower and the euro traded steady, as concerns over the euro zone debt crisis weighed on market sentiment.

Uncertainty over Europe's political will to battle through its debt crisis heightened, after the Dutch Prime Minister tendered his government's resignation on Monday, while the prospect of a Socialist president in France triggered worries that Paris might loosen its austerity commitment.

Investors were also disappointed at the latest data that showed the euro zone's business slump deepened at a far faster pace than expected in April, suggesting the economy will stay in recession at least until the second half of the year. Anxiety over the euro zone has sent investors to seek safety in havens such as the dollar and US Treasuries, while gold has moved largely in tandem with riskier assets in recent months.

On the physical market, the sharp drop overnight prompted some buying, but the flow of orders has slowed as prices rebounded, dealers said. Spot silver lost 0.3% to USD 30.72 an ounce, off a three-month low of USD 30.45 hit in the previous session.

"The sentiment is rather bearish, and buyers are waiting for prices to fall further to near USD 30," said a Shanghai-based trader. He added that market participants are reluctant to build up their books ahead of a long weekend in China and a holiday in Japan next week.

Spot platinum dropped to a three-month low of USD 1,544.75 an ounce, and later recovered to USD 1,550.25. The gold-platinum spread widened to above USD 84, its highest in more than two months.

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