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Gold slips on firmer dollar; Fed eyed
Michael Taylor
LONDON
Wed Jan 27, 2010 6:39am EST

LONDON (Reuters) - Gold prices eased slightly on Wednesday as the dollar firmed a touch versus the euro, as investors shied away from riskier assets on concerns about China tightening lending and ahead of a U.S. interest rate decision.

China

The Fed ends a two-day meeting on Wednesday, which is expected to yield little in terms of a policy shift, but comes as the market waits to see if Chairman Ben Bernanke will be confirmed in the post for a second term.

Gold was bid at $1,094.70 an ounce by 1038 GMT (5:38 a.m. EST), against $1,097.25 an ounce in New York late on Tuesday. Last week, the yellow metal touched a one-month low at $1,081.90.

U.S. gold futures for February delivery were at $1,094.70 per ounce, down 0.3 percent.

"The dollar is stronger today, and that is keeping precious under pressure," said David Thurtell, an analyst at Citigroup. "Also, a little bit of de-risking in there too."

A firmer U.S. currency makes metals priced in dollars more expensive for holders of other currencies.

"China monetary tightening talk is the big one but also Obama talking about budget cuts and tying down the banks on what they can do, is all pretty negative," said Thurtell.

China's credit-tightening steps and President Barack Obama's plans to limit banks' risk taking have dampened confidence about an economic recovery in the past few weeks, helping investors shift back to the dollar from riskier assets, including commodities.

Obama's State of the Union speech is also due on Wednesday.

FOMC CRUCIAL

But crucial to sentiment will be the Federal Open Market Committee (FOMC), which ends a two-day meeting, with policymakers expected to keep interest rates near zero and indicate whether they will stick to plans to wind down an emergency asset purchase programme by March.

"The market has been building a base for the next move and we expect things to get more exciting," said Andrey Kryuchenkov, an analyst at VTB Capital. "Volatility will pick up, while later today all focus will be on the Fed statement."

Palladium prices fell more than 2 percent, sliding further from the 19-month highs of $471.75 per ounce they hit last week when investment demand fueled by the recent launch of exchange-traded funds in the United States boosted prices.

Palladium was at $415.50 an ounce, versus $425 late in New York on Tuesday. Spot platinum was bid at $1,514 per ounce, against $1,532.50.

Also weighing on sentiment was news that Toyota Motor Corp (7203.T), the world's biggest automaker, is to suspend U.S. sales of eight models subject to a massive safety recall.

Platinum and palladium are highly exposed to the auto sector as they are chiefly used by carmakers as a component in catalytic converters. "If you are looking for excuses to sell short term, this is another one," said Citi's Thurtell.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings stood at 1,111.922 tonnes as of January 26, unchanged since January 19.

Among other precious metals, silver prices were at $16.64 an ounce versus $16.72 an ounce late on Tuesday.

(Additional reporting by Risa Maeda in Tokyo; editing by sue Thomas)

http://www.reuters.com/article/ousivMolt/idUSTRE5B10OV20100127