Gold fell to its lowest level in a week in Asia on Wednesday as funds liquidated their positions ahead of a US Federal Reserve meeting that may result in a further boost to the US dollar. Some dealers said gold seemed to be tracking the dollar again after loosening its link with currencies in the past few weeks.
A stronger dollar makes dollar-priced gold more expensive for holders of other currencies. A softer crude oil price also diminished gold's role as a hedge against inflation. Spot gold was at $434.90/435.60 an ounce, compared with $435.80/436.50 last quoted in New York on Tuesday, when the yellow metal fell nearly $4 an ounce.
Gold has fallen nearly 2 percent since hitting a three-month high at $443.60 an ounce on Friday. "I think position-squaring has been done ahead of the Fed.
I think we are sort of just biding the time, waiting for the meeting tomorrow," said Martin Mayan, associate director at N M Rothschild in Sydney.
The Fed is expected to raise rates by a quarter of a point to 3.25 percent on Thursday at the end of a two-day meeting, boosting the yield appeal of the dollar against the euro and yen.
The euro was at $1.2061 versus $1.2053 in late US trade on Tuesday.
"I reckon at $432 we should find support, and then $439-$440 is sort of resistance," Mayne said. But Yukuji Sonoda, a precious metals analyst at Daiichi Commodities in Tokyo, said gold could fall to $425 an ounce, a level last seen two weeks ago, as fund managers took profits.
"But they will come again soon to the market. We will recover to $440 within two weeks," he said. In other precious metals, spot silver was trading at $7.09/7.11 an ounce, up from $7.06/7.09 an ounce last quoted in New York.
The metal had fallen to a five-week low of $7.06 an ounce on fund liquidation. Platinum was at $881/886 an ounce, versus $880/884 in New York.
Sister metal palladium was at $182/187 an ounce, versus $185/189. On Hong Kong's Chinese Gold and Silver Exchange, gold was quoted at HK$4,027 per teal (37.5 gram ingot) down from HK$4,036.