Gold slips on tame U.S. inflation, market braces for Fed
NEW YORK/LONDON (Sept 17) Gold fell on Tuesday on muted U.S. inflation data and as investors braced for the expected announcement by the Federal Reserve of a reduction in its bond-buying stimulus.
A sharp hike in top bullion consumer India's import duty on gold jewellery also dented buying sentiment in the physical market.
The U.S. Labor Department said consumer prices barely rose 0.1 percent in August but analysts said rising rents and medical care costs might prompt the Fed to begin scaling back, or tapering, its economic stimulus measures.
The Federal Open Market Committee meets Tuesday and Wednesday and economists polled by Reuters expect policy makers at the U.S. central bank to announce a $10 billion reduction in the Fed's $85 billion monthly bond-buying program, beginning September.
Analysts said gold prices could rally if the Fed decides not to begin tapering this month, or announces a reduction in bond
buying that is less than the market expects.
"If the Fed turns out to be anything other than what traders have been expecting on tapering, we are going to see much higher
gold prices," said Miguel Perez-Santalla, vice president at BullionVault.
Spot gold fell 0.2 percent to $1,310.55 an ounce by 3:13 p.m. EDT (1913 GMT). On Monday, gold tumbled 1.5 percent to a five-week low of $1,303.85.
U.S. gold futures for December settled down $8.40 an ounce to $1,309.40, with trading volume about 10 percent below
ts 30-day average.
Signs of U.S. economic weakness, such as disappointing nonfarm payrolls data for August, have made some investors
suspect that the Fed might postpone cutting monetary stimulus.
Gold has dropped 22 percent this year as the Fed signalled it would start reining in its massive bond-buying stimulus that
has boosted financial liquidity in the market.
"We tend to believe the bulk of gold declines based on tapering are already largely factored into current prices," said
James Steel, chief precious metals analyst at HSBC.
FED'S FUTURE STANCE EYED
Investors will also focus on the U.S. central bank's outlook on future monetary policy on Wednesday, analysts said. Goldman Sachs said in a note it was neutral on gold in the
near term, but expected the metal to make fresh lows in 2014 as hopes of better U.S. growth could reduce the need for monetary stimulus.
In the physical gold market, India increased its import duty on gold jewellery from 10 percent to 15 percent, the finance ministry said on Tuesday, setting it higher than the duty on raw gold in a move to protect the domestic jewellery industry.
However, gold prices at below $1,300 an ounce should trigger retail buying, said BullionVault's Perez-Santalla. In other precious metals, silver edged up 0.1 percent to $21.72 an ounce, after falling 2.3 percent in the previous session. Platinum fell 0.9 percent to $1,420.99 an ounce, while palladium gained 0.2 percent to $702.72 an ounce.
