Gold extended gains on Tuesday as speculative buying persisted after the precious metal breached a key resistance of $650 ounce last week, and with gains in shares offering additional support. But trading was subdued as a two-day meeting of the US Federal Reserve starts later in the day.
With the Fed expected to hold its benchmark federal funds rate at 5.25 percent, investors will watch closely for any policy comments. "The degree of success of the twin tasks of the Fed.'s efforts to manoeuvre the economy away from potential inflation pressures and prevent a housing sector slump would decide gold's price in the near term," said Pradeep Uni, analyst at Vision Commodities Services in Dubai.
Spot gold hit an intrude high of $656 an ounce, just below on Monday's 1-week high of $656.25, before slipping to $654.80/655.50. The metal was last quoted at $653.30/654.30 late in New York. Dealers said sentiment turned positive after gold broke $650 and stayed above that level, which opened up a new range between $650 and $680.
Key resistance was pegged at $660. In currencies, the dollar was little changed at 117.52 yen, while the euro was barely moved at $1.3291. Expectations that the Fed could cut interest rates later this year were heightened by a broad stock market decline triggered in part by the supreme mortgage sector.
But recent data showing no abatement in inflation pressure have checked those expectations. Dealers are also eyeing the release later on Tuesday of US housing starts data.
Benchmark gold futures for February 2008 delivery on the Tokyo Commodity Exchange rose 10 yen per gram to 2,508 yen, tracking rises in New York's Comex market. "In the short term, we might see the gold price trading in an upward bias and possibly looking to go up to, let's say, $660 an ounce," said David Moore, commodity strategist at the Commonwealth Bank of Australia in Sydney.
"What's happening is the gold market is consolidating after a period of quite significant volatility, when the gold price has been knocked around by movements in equity markets and movements in exchange rates," he said.
Gold hit a six-week low of $632.30 on March 6, when tumbling global stocks and a rising yen forced risk-averse investors to sell gold to cover losses. It fell to a one-week low of around $636 last week on fears of another global flight from risk. The Nikkei average jumped 1.24- percent on Tuesday as exporters such as Kyosera Corp climbed on a softer yen.
Silver rose to $13.18/13.21 an ounce from $13.16/13.19 late in New York on Monday, when it rallied to a two-week high of $13.22. Platinum dipped to $1,227/1,232 an ounce from $1,230/1,235 and off on Monday's 2-week high of $1,230. Palladium eased to $350/355 an ounce from $352/357.