Gold settled near a five-month low on Tuesday, after upbeat U.S. data fueled expectations that the Federal Reserve is set to taper its monetary stimulus, curbing investment interest in the precious metal.
Data released on Monday showed the Institute of Supply Management gauge of U.S. factory activity hit a 2.5-year high in November, potentially bringing the Fed closer to scaling back its huge quantitative easing program, a move that would support the dollar.
It would also weigh on gold by relieving pressure on long-term interest rates while potentially dampening expectations that inflation will rise in years to come.
"It's still the fear of tapering (that's steering gold),'' said Peter Fertig, a consultant at Quantitative Commodity Research. "It is more likely to happen in the first quarter than in December, but nevertheless the market is nervous that the Fed will taper soon.''
"Sentiment remains bearish, and larger players choose to stay away for now,'' said Andrey Kryuchenkov, an analyst at VTB Capital. "Given QE uncertainty, why would you want to boost your gold holdings?''
"The opportunity cost of holding gold will only increase from here, while subdued inflation and reduced macro risks make its safe-haven or inflation-hedging properties obsolete.''
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