Gold prices eased a touch on Wednesday as investors took to the sidelines ahead of a key central bankers' meeting at the weekend, which will be closely watched for signs that the U.S. Federal Reserve is considering fresh monetary stimulus measures.
Platinum ignored the softer tone of the other precious metals to edge higher as concerns over an outbreak of violence in major producer South Africa, which sent prices to 3-1/2 month highs last week, lent support.
The metals were held in a range, however, by speculation that Fed Chairman Ben Bernanke, in a speech at the meeting in Jackson Hole, Wyoming, could give a clear hint that the Fed may launch a new asset-purchase programme soon.
However, some market players say he may just repeat that the Fed has room to act, which would leave the market guessing until the central bank's policy meeting on Sept. 12-13.
“We (think) that we will see a fairly dovish Bernanke on Friday and that he will commit, if not at Jackson Hole then at the September FOMC meeting, to deliver more easing to the market,” Danske Bank analyst Christen Tuxen said.
“That's a very favourable environment for gold, and that means that in the next three months at least, there should be some upside. I'm not sure we'll necessarily test new record highs, but there is potential for closing in on the $1,800 level within the next three months.”
She said relative dollar strength in the medium term would likely cap gains as the euro zone debt crisis lingered.
Spot gold was down 0.1 percent at $1,664.69 an ounce at 0921 GMT, while U.S. gold futures for December delivery were down $2.00 an ounce at $1,667.70.
Gold is up nearly 2 percent since Aug 22, when the minutes of the Fed's last policy meeting suggested the U.S. central bank was ready to deliver another round of gold-friendly monetary easing “fairly soon” unless the economy improved.
Further monetary easing would maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom, undermine the dollar, boost liquidity, and fuel fears of inflation further down the line.
Shares and the euro were stuck in tight ranges on Wednesday with investors reluctant to make any moves ahead of Bernanke's speech on Friday and details of the European Central Bank's response to the region's debt crisis.
Investors are expecting the ECB to unveil soon an effective plan to tackle the high borrowing costs facing struggling euro zone nations like Spain.
ETFs ADD GOLD
Investment interest in gold remained elevated, with the world's largest gold exchange-traded fund - which issues securities backed by physical metal - recording an inflow of just over 3 tonnes on Tuesday.
That brought its rise for the month to nearly 38 tonnes, its biggest one-month inflow since November.
“While gold demand (fell) slightly in the first half, thanks to the plunge in Indian demand due to tax hikes, a weakening rupee, and record-high gold prices, the seasonal increase in India from September to November could prop up gold demand,” bullion broker Sharps Pixley said in a report.
“Central banks' continued gold purchase due to asset allocation reason has offset the lower consumption demand in countries such as India. In the first half, central banks bought 254 tons of gold, a 25 percent rise over a year ago.”
Statistics released last Friday by the International Monetary Fund showed Turkey raised its gold holdings by more than a fifth in July, while Russia, Kazakhstan and Sri Lanka also added to reserves.
Among other precious metals, silver was down 0.1 percent at $30.81 an ounce, while spot palladium was down 0.7 percent at $630.47 an ounce.
Platinum bucked the trend to rise 0.2 percent to $1,513.75 an ounce as investors continued to worry about unrest in the South African mining sector, after violence at Lonmin's Marikana platinum mine killed 44 earlier this month.
The gold/platinum ratio, which measures the number of platinum ounces needed to buy an ounce of gold, rose back to 1.1 on Wednesday, recovering from the three-month low it hit last week but well off its highs for the year of 1.17.
“South Africa is quiet at the moment, with labour talks ongoing, but the situation is far from under control, which will keep the PGMs supported for the time being,” commodities broker Marex Spectron said in a note. -Reuters