London - Gold edged lower on Monday as investors remained cautious ahead of an eagerly awaited US Federal Reserve meeting, which should disclose more details on the Fed's quantitative easing policy.
Platinum group metals held up, with spot palladium hitting its highest in more than 16 months, buoyed by signs of a brighter global economic outlook that is expected to boost demand for industrial metals.
Spot gold inched down 0.1 percent to $1,656.40 an ounce by 12:26 SA time, after dropping 1.5 percent last week, its sharpest weekly loss in a month. It fell to a two-week low of $1,654.74 earlier.
US gold futures for February delivery were down 0.1 percent to $1,655.
“The market is on hold ahead of the US Federal Reserve's meeting, and expects comments on further quantitative easing measures,” MKS Finance's head of marketing Frederic Panizzutti said.
“Today's trade should be pretty quiet, with gold players watching euro/dollar movements, looking for any indication of what is going to happen in the next few days,” he added.
The Federal Open Market Committee (FOMC) policy statement on Wednesday is likely to provide the next short-term direction for gold. Accommodative policy is seen as positive for the metal, as rampant cash printing would prompt currency debasement.
US non-farm payrolls data on Friday will also be examined for more clues on the state of the world's largest economy.
On the wider markets, the euro held below an 11-month high against the dollar as investors awaited the ECB's monthly data on bank lending to companies and consumers for confirmation that growth is returning to the economy.
Signs that the euro zone crisis is stabilising and the US recovery is gaining traction drove investors to the higher-yielding equity market, sending Wall Street up for the eighth straight day on Friday and out of non-yielding gold.
IRAQI GOLD HOLDINGS DECLINE
The latest gold reserves data from the International Monetary Fund showed Korea and Russia raised their gold holdings in November and December respectively, while Iraq cut its holdings by a quarter in November, reversing some recent efforts to bolster its reserves.
Physical buying ticked up in Asia, but was lacklustre compared to the past few years when buying typically surged ahead of the Lunar New Year festival, including in China, which is vying with India to be the world's top gold consumer.
“There is little buying as old stock is yet to be sold,” one dealer with a state-run bullion importing bank in Mumbai said. “We are hopeful of the stock getting cleared this week.”
Hedge funds and money managers raised their net long bets in US futures and options of gold and silver in the week ended Jan. 22, data from the US Commodity Futures Trading Commission showed.
Spot silver was down 0.4 percent to $30.96 an ounce.
Net length in platinum rose to a record high of 38,097 contracts, and net length in palladium climbed for a second straight week to an all-time high of 18,972 contracts, CFTC data also showed.
Spot palladium rose to $741.75 an ounce, its highest since September 9, 2011, before easing slightly to $739.97 an ounce, still up 0.3 percent.
Spot platinum gained 0.4 percent to $1,687.49, posting a rise of nearly 10 percent so far this year.
“These white metals' stronger links to economic performance and robust supply and demand fundamentals are attracting market interest at the moment,” broker UBS said in a note. - Reuters