Gold falls on stimulus concerns
FRANKFURT (Aug 20) Gold fell on Tuesday on speculation that the US Federal Reserve (Fed) might soon taper its monetary stimulus. July's minutes are to be released on Wednesday. Furthermore, bullion's rally to two month highs in the previous session are dampening physical demand.
Gold futures traded 0.52% lower at $1,358.60 an ounce at the time of writing.
The US dollar index, measuring the relative strength of the greenback against a basket of six major currencies, inched up 0.01% to 81.234 at the same time.
Holdings in the SPDR Gold Trust fell to 912.32 tonnes on Monday after booking its first weekly rise since November last year. The volume of holdings fell under 1,000 tonnes in June for the first time in more than four years.
Fed minutes
Investors will be watching closely the Federal Open Market Committee (FOMC) minutes due out on Wednesday for more clues as to when the central bank will begin cutting back the pace of its bond-buying program, running currently at $85 billion per month.
"Several Fed members earlier in the month noted that the committee may 'taper' earlier than anticipated, should economic conditions warrant it," analysts at HSBC wrote in a note on Monday.
"Given the thin summer trading conditions, gold prices are likely to stay choppy ahead of the FOMC minutes release," they said.
Policymakers have been reluctant to give a more accurate timetable for the so-called tapering of purchases, other than that it should begin later this year and that it will reflect improvements in the economy.
The latest economic data coming from the US have already pointed to an improvement in the world's largest economy, spurring speculation that the Fed is due to start with the tapering as soon as next month.
India's import
Traders in India said they would start to import the precious metal again over the next week after the country's central bank clarified a new rule that brought the flow of gold into India to a standstill at the end of the previous month.
HSBC analysts said that a clarification from the Indian central bank over the recent rule may cause a rebound in the country's gold purchases.
Above-average monsoon rains in India could lead to a strong harvest, and that may lead to further demand of bullion later in the year.
"The bulk of rural India's income is derived from the agriculture sector, and a more bountiful harvest may lead to an increase in physical gold buying ahead of the festive season later this year," analysts said.
