LONDON, Nov 1: Gold inched up in European trade ahead of a US Federal Reserve policy meeting later on Tuesday that could affect the dollar and provide clues to the precious metals market, dealers said.
The yellow metal fell more than $8 the previous day after a stronger dollar and a drop in crude oil prices fuelled heavy selling by funds. Dealers said the market could slip further.
Spot gold was quoted at $465.40/466.20 a troy ounce marginally up from $464.80/465.60 last quoted in New York on Monday.
I see the market quiet until we get the Federal Reserve decision on interest rates, said Paul Merrick, vice president of commodities at RBC Capital Markets.
And if they are going to continue to tighten the monetary policy by 25 basis points every time they meet, then I expect that gold would probably fall a bit more.
The dollar kept a firm tone on Tuesday, hitting a 2-year high against the yen as investors awaited a near certain, 12th straight rise in US interest rates.
The Fed is widely expected to announce a hike in interest rates to 4 per cent from 3.75 per cent and more economists see the rate climbing to 4.5 per cent or even 5 per cent next year as Fed officials express alarm about inflation.
Gold has lost around 3 per cent in value since hitting a near 18-year high of $480.25 on Oct. 12, when fund managers bought the metal on worries about rising energy costs.
Dealers said gold had potential to fall by about $5 an ounce in the near term.
James Moore of TheBulliondesk.com said a price drop could lift physical demand in India, the world’s largest gold consumer, and support the market.
But the medium term outlook remained positive despite a drop in crude oil prices because worries about the US economy and inflation continued, analysts said.
We can expect demand up towards the end of the year and I am still targeting close to $500 by the year-end, Merrick said.
Crude oil prices held below $60 a barrel on Tuesday as mild temperatures in the US Northeast and Japan limited demand for heating fuel.
Dealers also pondered the impact on bullion prices of Barrick Gold’s surprise takeover bid for Canadian competitor Placer Dome.
A potential deal may offer support to gold prices due to increased de-hedging, metals analysts said.
In related news, South Africa’s gold production for the first half of 2005 declined by 12.4 per cent to 147.9 tons from the same period last year, the department of minerals said.—Reuters
