Gold fell more than 1 percent early on Tuesday as US equities rallied and bullion buyers took to the sidelines before the conclusion of a two-day Federal Reserve policy meeting they hope will give greater clarity on the outlook for US monetary policy. The metal fell for a second day as its safe-haven appeal was reduced by the rise of US equities on hopes that the Fed will maintain its current level of stimulus at the end of its Open Market Committee meeting on Wednesday.
Traders are trying to anticipate the Fed's timetable for winding down purchases of $85 billion per month of bonds, a program known as quantitative easing. Analysts said, however, gold could stage a short-covering rally after the conclusion of the meeting.
"Should the FOMC not come any closer to giving greater clarification on the asset-buying program, then the gold market could rally and investors who have been shorting gold in anticipation of a Fed move away from QE may have to cover," said James Steel, chief precious metals analyst at HSBC.
Spot gold was down 1.2 percent at $1,367.60 an ounce at 12:36 pm EDT (1636 GMT). US Comex gold futures for August delivery fell $16 an ounce to $1,367.10. Concerns that US monetary policy may be reined in have helped knock gold prices 18 percent lower this year. Gold analysts say that move may have become overdone, however. "Gold is trading weaker on the fear that the FOMC may reduce the volume (of quantitative easing)," said Peter Fertig, a consultant at Quantitative Commodity Research. "But if anything they will be scaling out gradually, there will not be an abrupt end to QE."
Physical demand retreated in India and China, the top two consumers of bullion, from peak levels reached after a steep sell-off in April. A Hong Kong precious metals trader said premiums there had fallen to $2 an ounce over London spot prices, from a high of $6 last month. Hong Kong sells mainly to buyers in China. Among other precious metals, silver was down 0.7 percent at $21.67 an ounce. Platinum gained 0.5 percent to $1,437.25 an ounce and palladium fell 1 percent to $705.72 an ounce.
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