Gold hits 6-week low hit by firm dollar, ETF eases

Gold prices fell to a six-week low on Tuesday, with firmness in the dollar sapping demand as investors awaited the Federal Reserve’s two-day policy meeting starting later in the day and its economic outlook.

The dollar was firmer against the euro and most other major currencies except the yen after a broad sell-off in U.S. stocks on Monday raised doubts about the economic recovery, with gloomy World Bank forecasts adding to weak market sentiment.

Gold has often benefited from a similar sense of investor risk aversion, but traders said the dollar’s strength was instead weighing on bullion at the moment.

A stronger dollar also makes dollar-denominated assets appear more expensive.

“Right now, market players are closely watching the dollar given its strong influence on the gold market,” said Ronald Leung, a director of Lee Cheong Gold Dealers in Hong Kong.

“There is no other reason to buy gold so the dollar’s strength is being used as an excuse to sell gold,” he said, adding that the market was watching the Fed for any word on the economy or slow growth, or about its current policy stance.

Spot gold fell nearly 1 percent to a low of $912.90 per ounce, its lowest since May 12, compared to New York’s notional close of $921.90. As of 0606 GMT, gold was down 0.8 percent at $914.90.

U.S. gold futures for August delivery fell 0.6 percent to $915.40 per ounce. August futures settled down 1.6 percent at $921 an ounce on Monday on the COMEX division of the New York Mercantile Exchange.

The stronger dollar and doubts about a global economic recovery hit stocks and commodities broadly, leading oil prices to decline for a third business day on Tuesday.

Investor caution was stirred by the World Bank, which said prospects for the global economy remained “unusually uncertain” as it cut 2009 growth forecasts for most economies.

Reflecting an easing appetite for commodities including gold, the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings fell to 1,131.24 tonnes as of June 22, down 0.91 tonnes from the previous business day.

It was the first change in the holdings since June 5. The holdings hit a record 1,134.03 tonnes earlier in the month.

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