Gold drops from 3-week high, Fed meeting eyed
London (Dec 11) Gold prices dropped from a three-week high on Wednesday after the precious metal rallied over 2% in the previous session, boosted by strong physical demand in Asia and a weaker US dollar.
Gold futures were down 0.43%, trading at $1,255.70 an ounce as of 11:11am GMT, after hitting $1,268 an ounce in the previous session, the highest price since November 20. Silver futures, meanwhile, declined 0.08% to $20.300 an ounce as of the same time.
The US dollar index, measuring the strength of the greenback versus a basket of six of its major peers, stayed unchaged at 79.968 points.
Holdings in the SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, stood at 835.71 tonnes on Tuesday.
US budget deal
Overnight, budget negotiators in the US sealed a deal to set spending levels for the next two years and replace some automatic budget cuts. If the deal is approved by the House and Senate it will avert another government shutdown next month.
US President Barack Obama called the agreement a good first step and called on Congress to approve it.
"While modest in scale, this agreement represents a positive step forward by replacing one-time spending cuts with permanent reforms to mandatory spending programs that will produce real, lasting savings," House Speaker John Boehner stated.
During the recent government standoff in October, lasting for 16 days, bullion lost 3.5% as investors chose to hold cash instead of buying the yellow metal.
Fed meeting eyed
Traders now turn their attention to the upcoming Federal Reserve (Fed) policy meeting, scheduled for December 17-18, for any hints on the timing of the reduction in pace of the bank's monthly asset-purchasing program.
Some analysts say that tapering may be announced at the December meeting, following upbeat data on the labor market released recently, along with stronger economic growth figures for the country. The idea was supported by Monday's comments from three Fed officials who expressed eagerness for scaling back the stimulus.
Still, the majority of market participants predict the Fed will remain on hold until March next year.
