London: Gold firmed in Europe Tuesday, climbing back towards the previous session's near two-week high, as the dollar retreated ahead of a hotly anticipated policy meeting of the US Federal Reserve starting later in the day.
At the two-day meet in Washington, the Fed will consider the prospect of further quantitative easing. Markets are pricing in a commitment to buy at least $500 billion (Dh1.8 trillion) in Treasury debt over the coming months to spur a flagging economy.
Spot gold was bid at $1,357.95 an ounce at 0912 GMT, against $1,350.25 late in New York on Monday. US gold futures for December delivery rose $7.40 an ounce to $1,358.00. "A further rise in gold seems inevitable given, that QE2 is across the road," said Pradeep Unni, senior analyst at Richcomm Global Services in Dubai.
"Any further increase in this asset purchase or any sustained deterioration in the economic status of key economies led by the United States may result in gold surpassing the $1,400 mark."
The dollar weakened 0.5 per cent against a basket of currencies, under pressure from uncertainty ahead of the Fed, while the Australian dollar leapt after Australia's central bank surprised with a rate hike.
Gold typically benefits from a softer dollar, which boosts the precious metal's appeal as an alternative asset. All eyes are now on the Fed, with the scope and timing of easing measures set to have a major impact on the financial markets. Gold has benefited from expectations fresh easing could pressure the dollar and ultimately prove inflationary.
Relief rally
If the Fed's purchase is smaller than $500 billion, the dollar could see a relief rally, which would put gold under pressure, analysts said.
"Should the Fed disappoint markets in terms of the size of asset purchases, we might see a pullback across the sector," said Credit Suisse in a note. "[But] in our view, a potential correction is likely to be short-lived and could be used to build fresh positions as the fundamental backdrop remains supportive."
Indian gold consumers continued to buy ahead of the key Dhanteras festival, which celebrates prosperity. It is swiftly followed by the Diwali festival of light, another key gold-buying occasion for the world's biggest bullion consumer.
"The footfall is increasing by day," said Ashish Pethe of Mumbai retailer Waman Hari Pethe Jewellers. "We hope Dhanteras would be better than last year, but the proportion of bullion sales to jewellery sales would definitely be higher."
