Gold held near six-month highs on Thursday as investors focussed on the outcome of a Federal Reserve policy meeting, watched keenly on prospects for additional US monetary stimulus.
Bullion hit its highest level since late February on Wednesday at $1,746.20 after a German court ruling in favour of the euro zone rescue fund lent support to an already rallying market, anticipating increased money supply.
But some of the fizz has come out since, as profits were taken and nerves set in before the Fed's verdict on another round of quantitative easing. A Reuters poll showed economists had ratcheted up the odds of a third round of bond buying from the Fed to 65 percent.
Spot gold was almost flat on the day at $1,731.50 an ounce by 15:26 SA time, while US gold also traded nearly flat at $1,734.10.
“The way these markets have been trading, both the financial markets and gold, it looks as if we would have to get a statement that went beyond expectations for the gold market to react strongly,” HSBC analyst James Steel.
“If we don't get anything at all, I think the sell-off might be fast-paced, but could be limted,” he said.
“ We still might see a mild amount of profit-taking, but ... gold has still shown a fairly firm tone, so I'm not sure we can really expect the heavy amount of liquidiation on disappointing Fed statements that we have seen previously,” he said.
The price of bullion has gained more than 2 percent so far this month, following a near 5 percent gain in August when central banks around the world appeared more willing to take up further stimulus measures to aid a frail global economy.
“With a pullback in dollar terms and on the crosses there better be some good news from the FOMC for the bulls, as the market is looking a bit heavy,” said Simon Weeks, head of precious metal sales at Scotia Mocatta in London.
“Following the failure at $1,745 yesterday we could end up back at $1,700 if they don't get what they had hoped for. On the other hand, if the market can get back over the $1,745/1,750 area then there is room to $1,790,” he added.
Though the prospect of QE3 has greatly encouraged risk appetite among investors, sending Wall Street to pre-crisis levels and sinking the dollar to a four-month low against a basket of currencies, some analysts were sceptical on the impact of more stimulus.
“Although previous rounds of QE have helped kick-start some growth in the US, the fact that we are once again at the 'money trough' is not very reassuring,” Ed Meir, an analyst at INTL FCStone, said in a research note.
“We will have to see if investors reach the same conclusion in the weeks ahead, particularly if they see no immediate improvement in the macro numbers.”
Holdings of gold-backed exchange-traded funds eased slightly from a historical high to 72.47 million ounces by Sept. 12, still up nearly 3 percent over the past month, as investor interest in gold picked up again on prospects of easing monetary policy around the world.
Labour unrest in South Africa's gold and platinum industries kept a premium in platinum. Machete-wielding strikers forced the world's No.1 platinum producer Anglo American Platinum to shut down some of its South African operations, sending spot platinum to a five-month high of $1,654.49 in the previous session.
Spot platinum traded up 1.1 percent to $1,654.71. Gold's premium over platinum fell to $87 an ounce.
Spot palladium firmed to $680.72, after hitting $680.50 earlier in the session - a four-month high first reached on Wednesday. - Reuters