Gold held steady on Tuesday, with traders reluctant to make big bets in either direction ahead of an expected US Federal Reserve rate cut later in the day. Spot gold stood at $808.50/809.20 per troy ounce by 1611 GMT, marginally higher from $808.00/808.70 in New York late on Monday, when it gained more than 1 percent.
Markets were expecting the US central bank to cut its borrowing costs by 25 basis points to 4.25 percent as it battles the effects of a crisis in credit markets and a housing market downturn. The decision was due to be announced at 1915 GMT.
"Everybody is in a kind of holding pattern with no interest from the customer side ahead of the Federal Reserve decision. We have to see if the decision is a bit different from the expectations," said Michael Kempinski analyst at Commerzbank.
In currency markets, the dollar drifted up against most rivals with investors positioning themselves ahead of an outcome from the Fed. Investors priced in a one-in-four chance of a more aggressive 50-basis-point cut in benchmark rates, along with expectations for an up-to-75-bps cut in the discount rate - at which banks borrow from the Fed.
While a 25-basis point move was largely priced in, lower US rates were seen as supportive to bullion as it dulls the dollar's yield appeal and enhances gold's allure as an alternative investment. "The longer-term implications of falling US interest rates will draw investors away from US treasuries and towards better performing assets such as gold," said analyst James Moore of TheBullionDesk.com.
Wider investment interest in gold was robust, analysts said, with the largest gold exchange-traded fund (ETF) witnessing big inflows on Monday.
Gold held in New York-listed StreetTRACKS Gold Shares rose to a record high of 614.67 tonnes on Monday - up 36 percent from the start of the year. In other markets, most-active February gold COMEX futures contract was trading marginally lower on the day at $813.30 an ounce.
The key October 2008 gold contract on the Tokyo Commodity Exchange ended 35 yen per gram higher at 2,926 yen. While bullion prices have rallied in the last couple of days, spot gold is still some way off 28-year highs seen in early November at $845.40. UBS metals analyst John Reade said the market still had scope to correct lower, before fresh long positions were reinstated. "We continue to look for an opportunity to get tactically long gold again but need to see speculative positioning reduced and jewellery demand return," Reade said in a note to clients.
In industry news, South African gold output fell 5.8 percent in volume terms in October compared with the same month the previous year, official data showed on Tuesday. Platinum rose to $1,462/1,467 per ounce from $1,460/1,465 late in New York on Monday, while silver eased to $14.63/14.68 from $14.66/14.71 previously. Palladium rose $1 to $344/347 an ounce.
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