Gold down, dollar up with all eyes on Fed

GOLD dropped yesterday as the dollar rose‚ with investors keeping a keen eye on this week’s US Federal Reserve meeting for signals on the latest plans for its bond-buying programme.

The Fed meets today and tomorrow against a backdrop of stronger-than-expected data on US retail sales and the job market. All markets are seeking clues on any scaling back of its extra economic stimulus‚ quantitative easing (QE).

Spot gold fell 0.3% to $1 386.31 an ounce by 10.29am GMT. Bullion had closed marginally up for the week on Friday‚ helped by strong demand for coins and bars‚ a pullback in US stocks and rising tensions in the Middle East. US gold was down 0.2% at $1 384.80. “People are looking for more clarity – or not‚ as the case may be – on whether the Fed starts to ease off the QE bandwagon‚” said SocGen analyst Robin Bhar.

Any easing of the bond-buying programme‚ raising the prospect of eventual rate-tightening‚ is seen as unfavourable for gold as it raises the opportunity cost of holding a metal that has no interest rate.

Markets have been volatile since Fed chairman Ben Bernanke said last month the bank could scale back its stimulus measures‚ but bank officials have since given out conflicting signals.

Gold prices were supported by some buying in China‚ the second-biggest consumer of bullion after India. Shanghai gold futures were up 0.2% yesterday.

However‚ demand in Asia has cooled from peak levels seen after the mid-April sell-off in gold. Bullion is down 17% for the year after 12 years of annual gains.

Indian purchases of gold have fallen since an import-duty hike earlier this month. – Reuters