Gold bounced from a three-month low on Wednesday but remained under pressure as investors avoided big bets ahead of a key US rate decision by the Federal Reserve later in the day. Spot gold was at $868.30/869.20 an ounce at 1521 GMT, from $873.55/874.75 an ounce late in New York on Tuesday, but it was up from a three-month low of $862.30 an ounce it touched earlier in the day.
"It's the Fed tonight so people are not going to do much today," analyst John Reade at UBS said. "People got short and then they covered. I wouldn't surprised if they just track the dollar." The euro is flat around $1.5555, having recovered from a one-month low of $1.5518. A surprise rise in private-sector jobs this month along with data showing the US economy grew at a higher-than-expected pace initially fuelled further dollar buying.
But some of the dollar's gains came off as details on US gross domestic product were not as positive as the headline number suggested. A sharp fall in oil prices due to a bigger-than-expected rise in US weekly inventories also weighed on gold, but analysts expected few fireworks ahead of Fed decision.
"I think the market is being driven by month-end liquidity and the Fed tonight," said an analyst from MKS Finance. "Gold could trade sideways but I think the profit-taking will continue and that the lack of confidence in gold is going to increase," he said.
The Fed is expected to unveil its decision to trim interest rates by a modest quarter percentage point at around 1815 GMT on Wednesday. Analysts say it may also suggest the rate-cutting cycle it kicked off last autumn has reached an end. Any pause in trimming rates would theoretically support the dollar and reduce gold's appeal as an alternative investment.
But analysts revealed divisions towards the outlook for gold prices, with some expecting the metal to witness bursts of physical demand following heavy price declines in recent weeks. Gold has lost more than 15 percent in value since spiking to a record high at $1,030.80 on March 17, but the drop has attracted physical buying from jewellers.
In the physical sector, jewellery makers from India to Indonesia have snapped up purchases of bullion after it dived to lower levels, pushing up premiums for gold bars in Southeast Asia. Expectations of further declines in the dollar over the coming three months should help support gold prices, said Suki Cooper, precious metals analyst at Barclays Capital.
"I don't think we will see a dramatic rally in gold unless a new catalyst emerges but the overall environment remains quite positive, and physical buying emerging on price dips should keep prices underpinned," she said. Spot platinum fell to $1,909.50/1,929.50 an ounce from $1,918/1,938 late on Tuesday. Silver was firmer at $16.64/16.70 an ounce from $16.51/16.59 an ounce. Spot palladium dropped to $412.50/420.40 an ounce from $421/429 an ounce.
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