* Federal Reserve minutes indicate further asset buying
unlikely
* Stronger dollar exerts pressure on gold
* Coming up: U.S. ADP employment report and ECB meeting
(Updates throughout, changes dateline, pvs SINGAPORE)
By Michelle Martin
LONDON, April 4 (Reuters) – Gold prices fell 1 percent on
Wednesday after minutes from the U.S. Federal Reserve’s March
meeting suggested a fresh round of monetary stimulus was
unlikely as the U.S. economy gradually improves, and as the
dollar strengthened.
Ultra-loose monetary policy, which keeps real interest rates
and consequently the opportunity cost of holding gold low,
helped push the metal to record highs in 2011. Expectations the
Fed would instigate another round of quantitative easing sent
prices above $1,790 in February.
But minutes of the central bank’s latest policy meeting
published on Tuesday showed only two of the policy-setting
Federal Open Market Committee’s 10 voting members saw the case
for additional monetary stimulus.
“The minutes by the Fed indicated that there would be no
quantitative easing unless the economy takes a dip for the worse
– gold immediately sold off on that and now the dollar is
stronger too, so that’s weighing on gold,” said Standard Bank
analyst Walter de Wet.
“I wouldn’t be surprised if we push lower towards $1,600 –
that is what we think is a floor and we are unlikely to fall
substantially below that,” he said, adding that strong buying
out of Asia was limiting the metal’s losses.
Spot gold was down 0.8 percent at $1,631.45 an ounce
at 0936 GMT, hovering near a two-and-a-half month low, while
U.S. gold futures for April delivery were down $40 an
ounce at $1,632.
De Wet said gold was likely to push higher longer-term and
would probably rise above $1,900 towards the end of the year.
“We don’t see real interest rates positive this year … We
still think globally that monetary supply will continue to grow
– maybe not to the same rate as it did but certainly it’s going
to grow and these things are positive for gold.
Gains in the dollar exerted pressure on gold as the Fed
minutes helped push the U.S. unit to a one-week high against a
basket of currencies on Wednesday. A stronger dollar tends to
weigh on gold, which is priced in the U.S. currency.
Investors were reluctant to make fresh investments, with
world stocks and oil both down after the Fed dimmed hopes for
more asset-buying.
“The Fed has a high bar for additional easing and investors
should not really expect that the news flow will be conducive to
the Fed putting in additional easing by the end of April or even
June,” Wells Fargo Advantage Funds strategist Brian Jacobsen
said after the minutes were released.
IMPROVING U.S. ECONOMY
A spate of better-than-expected economic data out of the
U.S. in recent weeks has curbed investor appetite for gold,
which generally benefits from weak economic conditions due to
its status as a safe haven and store of value during inflation.
“The U.S. economy seems to be somewhat on its own in terms
of growth ‘ramp-up’ just as Europe nears recession, while
China’s growth remains suspect despite this weekend’s stronger
PMI number,” INTL FCStone analyst Ed Meir said in a note.
“This means that the dollar will likely push higher from
here, not necessarily a fertile backdrop for either metal (gold
or silver),” he added.
Investors will be looking at Automatic Data Processing’s
(ADP) employment report for March due at 1215 GMT for clues
about the health of the U.S. labour market ahead of Friday’s
payrolls numbers.
The European Central Bank’s (ECB) governing council is also
due to meet later in the session and is expected to hold
interest rates at a record low of 1 percent. Low interest rates
keep the opportunity cost of holding gold low.
Precious metals were weaker across the board, with spot
silver down 1.9 percent at $32.01 an ounce, spot platinum
down 0.6 percent at $1,624.99 an ounce, and spot
palladium down 0.6 percent at $644.47 an ounce.
(Reporting by Michelle Martin; Editing by Alison Birrane)
