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Gold prices eased in choppy trade on Tuesday after seven straight days of gains as investors waited to see whether a US Federal Reserve policy meeting would provide any further hints of extra monetary stimulus.
The metal has garnered belated safe-haven support this week from the euro zone crisis, despite a positive outcome from Greece's election, on speculation that Europe's financial woes could spread to threaten growth in the United States.
Risk aversion is still elevated in Europe after weak German data earlier on Tuesday, while investors remain jumpy ahead of an auction of Spanish debt on Thursday.
Gold stood at $1,623.89 by 16:00 SA time, down 0.25 percent. The market is still a long way off the record seen last year at $1,920.30 an ounce. US gold futures for August delivery were down $1.30 an ounce at $1,625.70.
The precious metal has risen 4.2 percent so far this month, benefiting from speculation that US authorities would further extend ultra-loose monetary policy after a spate of disappointing readings of the US economy.
Poor jobs data early this month prompted talk the Fed could be pushed into a third round of quantitative easing or that it would extend its long-term bond-buying through Operation Twist by a few months from the current deadline of June.
“Clearly the shift towards easier money is much more necessary now than it was three months ago. That's good news for gold,” Adrian Day, president of Adrian Day Asset Management, said.
“I don't think there's going to be another huge programme that people can call QE3, but the (Fed) will probably renew the Twist programme,” he added.
The Federal Open Market Committee (FOMC) releases a policy statement at the end of its two-day meeting on Wednesday. The Fed appears increasingly likely to offer more monetary stimulus despite political opposition, economists say.
Previous rounds of asset purchases by the Fed to drive down interest rates and stimulate the economy weakened the US dollar, boosted global stock markets and polished gold's appeal as a hedge against inflation.
Conversely, no hints of further easing could pressure gold.
Supporting the metal, the euro climbed against the dollar on Tuesday, shrugging off a weak German economic sentiment survey as speculation the Fed may ease monetary policy lent support to perceived riskier currencies.
Europe agreed on Monday to move towards a more integrated banking system to stem a debt crisis that threatens the survival of the euro.
At a Group of 20 summit of the world's leading industrialised and developing economies in Mexico, Germany and its big euro zone partners took the unusual step of spelling out in detail measures to complete the economic and monetary union they launched to great fanfare 13 years ago.
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust, climbed by 0.33 percent on Monday from Friday, while that of the largest silver-backed ETF, New York's iShares Silver Trust rose by 0.62 percent for the same period.
“Gold has hardly been leading from the front as it's been seen as a source of cash rather than a currency in its own right. But there are some signs that with ETF inventories on the rise again ... that maybe, just maybe there is some fresh money coming in,” said Simon Weeks, director of precious metals sales at ScotiaMocatta in London.
On the physical markets, jewellers in major consumer India are watching the progress of the monsoon, which could set the tone for demand during the next festive season. Indian farmers, who depend on monsoon rains for a good harvest, contribute to more than half of country's gold demand.
Trading was also muted in Hong Kong despite light buying by investors as the market shifted its focus to the Fed's two-day meeting. Gold bars were quoted at premiums of 90 cents to $1.20 per ounce, down from as high as $1.40 last week.
Among other precious metals, silver was down 0.1 percent at $28.68 an ounce, while spot platinum was up 0.2 percent at $1,478.75 an ounce, and spot palladium was down 0.3 percent at $624.93 an ounce. - Reuters