Gold firms for third day ahead of Fed tapering decision

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Gold prices eased on Tuesday ahead of this week's Federal Reserve policy meeting, on expectations that the U.S. central bank may soon be set to taper its bullion-friendly economic stimulus program.

The Fed begins its latest two-day policy meeting on Tuesday. Most economists polled by Reuters this week expect it to taper its huge bond-buying program in March, although the odds on a move this month or next have shortened after a run of upbeat data.

Expectations that the Fed will curtail its huge liquidity injection, which has driven gold prices higher in recent years by pressuring interest rates and fueling fears of inflation, have already pushed gold prices 25 percent lower this year.

With money managers' bearish bets in U.S. gold futures and options close to a 7-1/2 year high, some investors fear that gold's downward move has been overdone. Their recent moves to cover short positions have supported gold prices.

Chart: Precious Metals

Spot gold was down 0.9 percent at $1,233 an ounce, while U.S. gold futures for February delivery were down $6 an ounce at $1,233.

Bearish bets by hedge funds and money managers in U.S. gold futures and options are close to a 7-1/2 year high, according to data from the Commodity Futures Trading Commission.

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