Gold rose in Europe on Tuesday towards the previous session's near two-week high, as the dollar retreated ahead of the outcome of the US Federal Reserve's hotly anticipated policy meeting due on Wednesday. Spot gold was bid at $1,353.95 an ounce at 1608 GMT, against $1,350.25 late in New York on Monday. US gold futures for December delivery rose $3.80 an ounce to $1,354.50.
At the two-day meet in Washington, the Fed will consider the prospect of further quantitative easing. Markets are pricing in a commitment to buy at least $500 billion in Treasury debt over the coming months to spur a flagging economy. "People are convinced that QE will be substantial. (They are) buying the rumour," said VTB Capital analyst Andrey Kryuchenkov. "The Fed does not want to disappoint the market."
Under pressure from uncertainty ahead of the Fed, the dollar weakened 0.7 percent against a basket of currencies, while the Australian dollar leapt after Australia's central bank surprised with a rate hike.
Gold typically benefits from a softer dollar, which boost's the precious metal's appeal as an alternative asset. All eyes are now on the US central bank, with the scope and timing of easing measures set to have a major impact on the financial markets. Gold has benefited from expectations fresh easing may hurt the dollar and ultimately prove inflationary. If the Fed's purchase is smaller than $500 billion, the dollar could stage a relief rally, which would put gold under pressure, analysts said.
"Should the Fed disappoint markets in terms of the size of asset purchases, we might see a pullback across the sector," said Credit Suisse in a note. "(But) in our view, a potential correction is likely to be short-lived and could be used to build fresh positions as the fundamental backdrop remains supportive."
Indian gold consumers continued to buy ahead of the key Dhanteras festival, which celebrates prosperity. It is swiftly followed by the Diwali festival of light, another key gold-buying occasion for the world's biggest bullion consumer. "The footfall is increasing by day," said Ashish Pethe of Mumbai retailer Waman Hari Pethe Jewellers. "We hope Dhanteras would be better than last year, but the proportion of bullion sales to jewellery sales would definitely be higher."
Silver was bid at $24.77 an ounce against $24.60, off the previous session's 30-year high of $25.03 an ounce. Data from the US Mint showed its silver bullion coin sales were up nearly 20 percent in the first 10 months of this year from a year before, to 28.1 million ounces from 23.4 million.
According to Washington-based The Silver Institute, the Royal Canadian Mint reported that 2010 sales of its Silver Maple Leaf bullion coin are up 30 percent from 2009 figures to date. Platinum was at $1,714.24 an ounce against $1,706, while palladium was at $644.65, extending earlier losses, against $649 the day before.