London: Gold eased in Europe on Tuesday as the market consolidated after three days of record highs.
Concerns over inflation and volatility in the currency markets are likely to fuel fresh buying of gold, analysts said.
"All governments and central banks are now trying to weaken their corresponding currencies, and in this situation gold, which is also a kind of currency, is [seen] positively," Commerzbank analyst Eugen Weinberg said.
Spot gold was bid at $1,278.65 (Dh4,694.99) an ounce at 9.13am GMT, against $1,279.25 late in New York on Monday. US gold futures for December delivery eased 50 cents to $1,280.30.
The dollar fell towards a five-week low against a basket of six major currencies ahead of the meeting, which was taking place in Washington and was due to conclude with an announcement later yesterday.
"Though the Fed is expected to keep the current policy unchanged, market participants are hoping for QE2 later in the year," said VTB Capital analyst Andrey Kryuchenkov in a note.
"For gold, the market holds strong not least on the expectation of a prolonged dollar weakness, especially in case the Fed renews its asset purchase programme and the economy gets yet another liquidity boost to avert a stagnating recovery."
Dollar weakness usually benefits gold, as it boosts the metal's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.
Healthy demand
Investment demand for the precious metal remained healthy, with holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, rising another 3.65 tonnes on Monday to 1,304.472 tonnes.
Investment demand for gold has risen this year as concerns over the global economy, the stability of the financial markets and the outlook for paper currencies boost buying of the metal as a safe store of value.
World Gold Council country manager Cihan Goksel told a WGC meeting in Istanbul yesterday that global gold demand rose 36 per cent in the second quarter to 1,050 tonnes.A debate at the Denver Gold Forum on Monday found few delegates at the industry conference expect gold prices to fall imminently.
DundeeWealth Econ-omics economist Martin Murenbeeld forecast the precious metal will keep rising because of heavy demand from central banks, the jewellery industry and private investors at a time when supplies have dwindled. At the same event, the chief executive officer of South Africa's third-largest gold miner, Harmony, said gold could reach $1,500 per ounce by the end of 2010.
Among other precious metals, silver was flat at $20.73 an ounce, after hitting a two-and-a-half year high of $20.99 on Friday. Platinum was at $1,617.50 an ounce against $1,625.75, and palladium at $532.50 versus $535.40.
