Gold firmed early on Tuesday but remained near 5-1/2-year lows as markets braced for this week's Federal Reserve meeting, at which policymakers are expected to give further clues on the timing of a US rate increase. The Fed suggested earlier this year that a near-term rate rise was on the cards if economic data supported such a move, but slowing growth in China and a drop in commodity prices have led some to question whether it will be pushed back.
Spot gold was up 0.2 percent at $1,095.28 an ounce at 2:26 pm EDT (1826 GMT), not far from Friday's low of $1,077, its weakest since early 2010. US gold futures for August delivery settled down 20 cents an ounce at $1,096.40. "Until the Fed provides some clarity on Wednesday, it's difficult to say that we've hit a floor," ING analyst Hamza Khan said. "The volumes we're seeing suggest that this could just be short covering in case the Fed announces some firmer vocabulary."
Rising interest rates pressure gold by lifting the opportunity cost of holding bullion, while boosting the dollar. Expectations a near-term hike may be possible are making investors hesitant to bid up gold despite a price slide, with its failure to benefit from jitters over Greece this year undermining its appeal as a haven from risk. "Gold is treading water despite a slight improvement in the dollar and US Treasury yields," Mitsubishi analyst Jonathan Butler said. "That would seem to indicate some pricing in of the Fed pushing out interest rate rises further into the future."
GFMS researchers at Thomson Reuters said in a report that global gold demand hit its lowest since 2009 in the second quarter. Also weighing on sentiment, China's net gold imports from main conduit Hong Kong fell to a 10-month low in June. Spot platinum was up 0.1 percent at $980.25 an ounce, near last week's 6-1/2-year low. "With the situation between labour unions and miners getting tenser, we believe that there is an increasing risk of strike action at South Africa's platinum mines," said Capital Economics in a note, pegging prices to rise to $1,060 at the end of the year. Silver was up 0.9 percent at $14.67 an ounce and palladium was up 0.9 percent at $617.50 an ounce.
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