Gold ends lower on Fed uncertainty, dollar gain

Reuters with
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Gold ended the trading session lower on Tuesday as uncertainty before a Federal Reserve policy meeting and key U.S. data later this week pulled the metal back from a one-week high hit on the back of violence in the Middle East and Ukraine.

The Fed kicks off a two-day meeting on Tuesday, with markets watching for clues as to when the U.S. central bank will begin increasing interest rates. The bank will make a statement on Wednesday at the end of the meeting.

Gold is highly sensitive to any changes in U.S. monetary policy. It rallied to record highs in the wake of the financial crisis after the Fed's extraordinary stimulus measures drove down interest rates while stoking fears of inflation.

U.S. gold futures for August delivery settled down $5.00 at $1,298.30 an ounce. while spot gold was last down 0.3 percent at $1,299.60 an ounce, having peaked at $1,312.10 earlier.

Chart: Precious Metals

"The general tendency has been for gold to drop down below $1,300," Natixis analyst Bernard Dahdah said.

"What's been keeping it up has been those (geopolitical) tensions. If you look at the economic data, or the dollar, which has strengthened quite a bit ... that should make investors feel more confident in the economic situation, and drive more money out of gold."

The dollar rose 0.3 percent against a basket of currencies after data on Tuesday showed U.S. consumer confidence jumped in July to a monthly high not seen since October 2007.

Gains in European shares remained capped, however, by the threat to the region's economy from any more sanctions against Russia by the West.

Gold may soon break out of its bear market

Intense fighting between Ukrainian troops and pro-Russian rebels in eastern Ukraine killed at least 19 civilians, local officials said, as Kiev pressed an offensive to close in on the separatists.

Meanwhile Israel knocked out Gaza's only power plant, flattened the home of its Islamist political leader and pounded dozens of other high-profile targets, with no end in sight to more than three weeks of conflict.

In the physical markets, demand was subdued as buyers waited on the sidelines for a possible drop in prices. Premiums in top buyer China were steady at about $2-$3 an ounce.

Buying in Asia's major gold consumers has shown signs of softening this year after a strong 2013, with China's net overseas purchases of gold through key conduit Hong Kong falling to a 17-month low in June.

--By Reuters. For more information on precious metals, please click here.