Gold Falls Ahead of FOMC Meeting
Gold prices fell on Monday as traders cashed in gains ahead of this week's Federal Reserve meeting, as they waited to see whether the U.S. central bank would start to trim its extraordinary stimulus measures.
While the odds still point to no major policy change when Fed officials meet Dec. 17-18, most recent U.S. economic data suggest the beginning of the end of the massive bond-buying program will come sooner rather than later.
Spot gold was down 0.7 percent at $1,229.30 an ounce at 1104 GMT, having ended last week up 0.8 percent as uncertainty ahead of the Fed meeting triggered a flurry of short covering.
U.S. gold futures for February delivery were down $5.80 an ounce at $1,228.80.
Expectations that the Fed will taper stimulus have already knocked gold prices 25 percent this year, their biggest annual drop in 32 years. As such, the impact of an eventual start to tapering on gold is uncertain.
"Whether tapering might come this week or whether it might come in January or in March, the market is fairly convinced that tapering is coming," Mitsui Precious Metals analyst David Jollie said. "In that sense a lot of the impact is built in."
"Clearly if tapering is announced that is negative for gold, but could be only marginally negative in the sense that we've known this is coming anyway," he said. "I think that what people will realise once tapering does start is that tapering is not the end of QE, it's a slowing in the pace of QE."
Investment interest in gold remained soft, with the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, reporting an outflow of 8.1 tonnes last week.
In the year to date its holdings have fallen 523 tonnes, or 39 percent, to a near five-year low at 827.6 tonnes.
E Fund Management Co Ltd launched China's third gold-backed ETF on Monday but, like its predecessors, the fund failed to make a splash as investors in the world's biggest bullion user show a preference for physical metal.
GOLD VULNERABLE
In the physical markets overnight in Asia, buying was quiet as consumers were hoping prices would drop further this week after the Fed meet.
Data released over the weekend showed India's exports of gold jewellery fell by almost a third year on year in November as restrictions continued to hit shipments. New rules imposed this year mean export volumes must be at least 20 percent of imports.
From a chart perspective, gold remains vulnerable to further losses after running into heavy resistance last week at $1,268, a key technical retracement of its October to December drop, analysts said.
"While this holds on a closing basis and as bearish conditions persist, we will be watching for momentum tools to cross lower on a closing basis to signal a resumption of the downtrend," UBS said in a note. "Support is at 1210.60, the Dec 6, low ahead of the critical 1179.40, the June low."
Among other precious metals, silver was down 0.9 percent at $19.49 an ounce, while spot platinum was down 0.8 percent at $1,350.98 an ounce and spot palladium was down 0.1 percent at $713.30 an ounce.
Palladium was last week's biggest faller, with a drop of 2.4 percent. The platinum/palladium ratio, which measures the number of palladium ounces needed to buy an ounce of platinum, recovered to 1.91 from last week's 11-year low of 1.85.