Gold has edged lower as worries about continued stimulus reduction by the Federal Reserve outpaces support from escalating tensions between Russia and Europe.
Gold for June delivery, the most active contract, on Tuesday fell $US2.70, or 0.2 per cent, to settle at $US1,296.30 a troy ounce on the Comex division of the New York Mercantile Exchange.
Gold prices have been trending lower since mid-March, as traders cut back their holdings of the safe-haven asset amid indications that the US economy was growing stronger. Many investors bought gold in the wake of the financial crisis on expectations that it would keep its value better than other assets. But as the global economic picture improves, demand for protective investments like gold has been fading.
On Tuesday, investors turned their sights to Washington, where the Federal Open Market Committee began a two-day policy-setting meeting. The central bank has cut its monthly stimulus efforts by $US10 billion in each of December, January and March, and some investors wager that another reduction will be announced as part of the Fed’s policy statement on Wednesday.
“It always makes the market a little bit nervous,” said Sterling Smith, a broker with Citigroup, of the FOMC meeting.
“The gold market is saying that they’re not going to see anything dovish coming out of this meeting, and if anything, the Fed could take a more hawkish stance,” Smith said.
Gold had rallied to record highs on the back of the Fed’s stimulus efforts, as fears that the added liquidity would weaken the US dollar or spur inflation led some investors hoard hard assets. But gold prices retreated once the central bank signalled it would soon shift to a tighter policy stance.
While many investors view gold as a haven, the precious metal doesn’t earn interest or dividends and struggles to compete with Treasury bonds, a wealth-preservation asset that does earn interest.
Gold traders are also keeping watch on developments in Eastern Europe, as tensions between Russia and the West mount.
The European Union levied sanctions against Valery Gerasimov, chief of staff of Russia’s Armed Forces, as part of its response to Russia’s threats and incursions against Ukraine. Gerasimov is one of 15 individuals the EU on Tuesday said it would add to a list of Russian leaders and pro-Russian Ukrainian figures facing punitive measures.
Settlements (ranges include open-outcry and electronic trading):
London PM Gold Fix: $US1,297.75; previous PM $US1,299.00
Jun gold $US1,296.30, down $US2.70; Range $US1,286.10-$US1,302.00
Jul silver $US19.538, down 8.1 cents; Range $US19.335-$US19.630
Jul platinum $US1,431.40, up $US11.70; Range $US1,411.10-$US1,438.00
Jun palladium $US807.90, up $US7.20; Range $US795.25-$US809.75