Gold prices eased on Tuesday, weighed down by hopes that the U.S. budget crisis can be averted and ahead of a key Federal Reserve policy statement regarding its monetary outlook.
Bullion snapped a three-day winning streak, as safe-haven bids dried up after U.S. House of Representatives Speaker John Boehner said he remained hopeful that an agreement by the end-of-year deadline.
Boehner, however, did not offer any concrete signs of progress on talks about the so-called "fiscal cliff". Investors also lessened their bullish bets ahead of Wednesday's Fed Open Market Committee policy statement. The U.S. central bank is expected to announce monthly bond purchases of $45 billion, on top of the $40 billion in mortgage-backed security purchases it announced in September. "
The big money is waiting to see what the news is with the FOMC before making their move. Gold is becoming less liquid as there are less bids out there near the year end," said Miguel Perez-Santalla, vice president of online precious-metals exchange BullionVault.
Spot gold was down about 0.2 percent near $1,708 an ounce. U.S. COMEX gold futures for February delivery settled down $4.80 at $1,709.60 an ounce, with volume at 60 percent below its 30-day average, preliminary Reuters data showed.
Gold prices initially rose with equities on optimism that ongoing talks between Boehner and President Barack Obama were enough to avoid tax hikes and spending cuts which could send the United States back into a recession.
Other traders said the gold market has already factored in expected Fed stimulus on Wednesday, and a disappointment could trigger a sell-off. Prior to Tuesday's pullback, gold had risen 2 percent after hitting a one-month low on Friday after better-than-expected U.S. nonfarm payrolls data. Silver was down more than one percent, trading beneath $33 an ounce.
Physical Gold Demand Strong
Despite Tuesday's pullback, physical bullion demand remained strong, particularly in China, one of the world's top bullion consumers.
Gold premiums in Hong Kong rose to their highest in about five months on Tuesday as Chinese banks stocked up on bullion to avoid a supply crunch when refineries close shop for the year-end holidays.
In South Africa, gold output nearly halved in October from the same period last year, highlighting the impact of violent strikes that swept the mining sector.
Among platinum group metals, platinum rose nearly 0.8 percent to $1,630, while palladium was down about 0.8 percent below $690, after it has risen around 15 percent in the last month, outstripping gains in other precious metals.