Gold drifts lower as dollar firms ahead of Fed

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BENGALURU (Reuters) – Gold prices fell on Wednesday as the dollar firmed above multi-month lows, with investors waiting for clues on the U.S. Federal Reserve’s tightening plans after the conclusion of a two-day meeting.

The U.S. central bank will issue its monetary policy statement at 2 p.m. EDT (1800 GMT), where it is expected to hold interest rates unchanged and possibly hint that it will start winding down its massive holdings of bonds as early as September.

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Spot gold fell 0.27 percent to $1,245.16 per ounce at 0629 GMT. U.S. gold futures for August delivery fell 0.61 percent to $1,244.50 per ounce.

“Markets are certainly a little bit cautious ahead of the Fed meeting and that’s probably hindering investor appetite,” said ANZ analyst Daniel Hynes. “I think the market will be looking for any comments around inflation.”

Economists expect the Fed’s benchmark lending rate to remain in a target range of 1.00 percent to 1.25 percent.

“At this stage, we would rather be neutral on gold as Fed wording could throw the market off (in either direction),” said INTL FCStone analyst Edward Meir.

Higher interest rates would push yields up and likely boost the dollar.

Higher yields increase the opportunity cost of holding non-yielding gold, while a stronger dollar makes bullion more expensive for non-U.S. investors.

“Stronger U.S. economic data has also weighed on gold, but has been negated by the weak inflation outlook,” said ANZ’s Hynes. “Assuming that we don’t see any sort of change in language from the Fed meeting, I suspect we’ll see safe haven demand pushing gold prices up.”

Long-dated U.S. Treasury yields jumped by the most in almost five months on Tuesday as stocks hit record highs. [US/]

Asian stocks steadied, while the dollar held firm as investors awaited the Fed’s policy decision. [MKTS/GLOB] [USD/]

Meanwhile, holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 1.13 percent to 800.45 tonnes on Tuesday from 809.62 tonnes on Monday.

In other precious metals, silver slipped 0.6 percent to $16.36 per ounce.

Platinum edged 0.2 percent lower to $922.00 per ounce, while palladium dropped 0.4 percent to $853.70 per ounce.

Reporting by Nithin Prasad and Arpan Varghese in Bengaluru; Editing by Joseph Radford and Biju Dwarakanath

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