Gold off 1.5pc on Syria weapon plan, Fed uncertainty
LONDON (Sept 10) Gold fell further on Tuesday after Syria accepted a Russian proposal to give up chemical weapons and win a reprieve from US strikes, while uncertainty over the timing and pace of US monetary stimulus also weighed.
The Russian diplomatic initiative, which apparently emerged from off-the-cuff remarks by the US secretary of state, marks a sudden reversal after weeks in which the West appeared finally headed towards intervention in a two-and-a-half year old war.
Gold had started the day lower after reports that US President Barack Obama did not completely take the plan to attack Syria off the table in response to proposals from Russia overnight but said plans to make Syria hand over its chemical weapons could be a breakthrough.
Spot gold dropped as much as 1.6 percent to a session low of $1,364.34 an ounce, not far from a two-week low of $1,362.55 hit on Friday. It was trading down 1.5 percent at $1,366.25 as of 1219 GMT. The metal was on track for its second consecutive day of losses.
US gold futures for December delivery fell $20.20 to $1,366.00 an ounce.
"After the sell-off last week, it's a case of people not wanting to put substantial risk ahead of the Fed and it is probably going to remain like that until the central bank's meeting next week," Standard Bank analyst Walter de Wet said.
"The news on Syria has definitely taken some of the edge off crude oil prices and gold is impacted," he added.
European shares rose and Brent crude futures fell towards $112 a barrel as expectations of a US strike in Syria ebbed.
The positive correlation between gold and oil has been restored in the past few sessions as gold is seen as a hedge against oil-led inflationary pressures.
Analysts expect gold to remain under pressure in coming sessions on increased uncertainty about the timing and pace of the US Federal Reserve's plans to scale back its stimulus.
Bullion prices have lost nearly 18 percent since the US Federal Reserve signalled it would start reining in its monetary stimulus programme by the end of the year.
The Fed's Open Market Committee (FOMC) is set for Sept. 17-18.
The Fed's stimulus has been a key driver in gold's rally in recent years, as this has meant increased financial liquidity and record-low interest rates.
