Gold settles modestly higher; Fed meeting eyed

Source: World Gold Council

Gold futures settled higher at $1328.40 on Monday, as investors turned their attention to a U.S. Federal Reserve meeting later in the week, which is expected to reaffirm its stance to keep interest rates near zero.

Spot gold fell 0.3 percent to $1,329 an ounce, after briefly turning positive earlier. Last week it regained the $1,300 level for the first time in a month. Prices posted a combined 9 percent over the last three weeks.

U.S. gold futures for August settled up 0.5 percent percent to $1,328.40 an ounce.

"I think people want to stay on the sidelines until the Fed meeting and this will generate a lot of two-way business in the next couple of sessions," MKS SA senior vice president Bernard Sin said. "Overall, traders will keep taking profits rather than trying to build long positions until the uncertainty around the timing of the Fed tapering dissolves."

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The Fed's Federal Open Market Committee (FOMC) begins a two-day meeting on Tuesday.

The European Central Bank and the Bank of England also meet this week and are expected to repeat or refine their previous guidance that borrowing costs would remain extraordinarily low as long as growth is sub-par and inflation is not a threat.

The dollar was under pressure around an earlier five-week trough, while benchmark U.S. 10-year Treasury yields flattened below 2.6 percent and European equities rebounded after a two-session dip.

Bullion has lost a fifth of its value this year as signs of an economic recovery in the United States have sparked speculation of an end to easy central bank money.

But comments from Chairman Ben Bernanke this month have reassured investors that the central bank will be slow to scale back monetary stimulus, pushing gold up for three straight weeks.

(Read more: Here's what gold bugs need to see: Pro)

Investors, however, want more guidance on the exact timing of any scaleback, which still remains unclear, and are keenly watching every piece of economic data to help gauge where the Fed is heading.

"Prices are unlikely to maintain their upward momentum in the seasonally weak period for demand unless U.S. macro data deteriorate, driving further short covering-led support," Barclays said in a note.

China gold ETFs

The launch of China's first two gold-backed (ETFs) opened to lackluster performance on the Shanghai Stock Exchange.

HuaAn Gold ETF and Guotai Gold ETF raised a total of 1.6 billion yuan ($260.9 million) in their initial funding round, coming in well below expectations due to sliding gold prices and a recent domestic credit-crunch scare.

In a gauge of investor sentiment, CFTC data showed options and future of COMEX gold rising by more than 14,500 contracts to reach a total of more than 70,000 in the week to July 23.

Gold / US Dollar Spot

Silver turned negative to fall 0.4 percent to less than $20 an ounce, having touched a one-month high of $20.60 last week. The gold/silver ratio rose to its highest since August 2010 at nearly 67.

Platinum rose 1.1 percent to $1,441 an ounce and palladium gained 1.5 percent to $734 an ounce.