Forexpros – Gold futures traded higher on Tuesday, rebounding from a seven-week low as investors awaited the outcome of the Federal Reserve’s Open Market Committee meeting later in the day, while some bargain buying also lent support.
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,675.25 a troy ounce during U.S. morning trade, climbing 0.42%.
It earlier fell by as much as 0.67% to trade at a daily high of USD1,681.55 a troy ounce.
Gold futures were likely to find support at USD1,649.05 a troy ounce, the low of October 25 and resistance at USD1,718.75, the previous day’s high.
The Federal Reserve was expected to keep interest rates near zero, where they have now been since December 2008, as it searches for other tools to bolster the economy in the last monetary policy meeting of the year.
The Fed was not expected to take any policy action, although further easing steps are seen as likely next year.
Gold can benefit from such an environment of easy money because of expectations that ample liquidity would put a damper on the value of paper currencies.
When the Fed announced the second round of quantitative easing, known as the QE2, in November last year, gold prices scored record highs for four consecutive sessions.
Gold prices found additional support as market sentiment recovered slightly after data showed an improvement in German economic sentiment and following a well-received Spanish bond auction.
Gold futures dropped nearly 2.7% on Monday, its biggest one-day drop in three months amid growing fears over the possibility of a mass downgrade of euro zone sovereign debt after last week’s economic summit failed to ease market jitters.
For much of the last year, investors’ typical reaction to downbeat news from Europe was to buy gold, as it boosts the safe haven appeal of the precious metal.
But since hitting a record above USD1920 in September, the precious metal has switched from a negative to a positive correlation with risk-sensitive assets, such as stocks and industrial commodities, with investors preferring the U.S. dollar as their safe haven of choice.
Elsewhere on the Comex, silver for March delivery rose 0.9% to trade at USD31.25 a troy ounce, while copper for March delivery was flat, trading at USD3.465 a pound.
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