• Print
• E-Mail

LONDON - Gold steadied on Thursday after hitting three-month lows the previous day, but analysts were waiting for the outcome of a two-day Federal Reserve meeting that should steer financial markets in the short term.

Traders said physical buyers and bargain hunters had stepped into the market to take advantage of lower prices.

Spot gold rose to $646.00/646.70 an ounce as of 0950 GMT, versus $642.50/644.00 in late New York.

On Wednesday it fell as low as $638.90, its weakest since March 14, as investors cashed in on gold and reduced their exposure to other commodities amid worries over the U.S. mortgage market.

Gold, traditionally seen as a haven for investors, has more recently been put in the same category as other commodities, which are considered riskier investments.

Analysts said the Federal Reserve's post policy-setting meeting statement later in the day, which should give clues about the future path of U.S. monetary policy, would be the main price driver.

INFLATION WATCH

"Should (Fed chairman) Bernanke hint that inflation is still a concern then I suspect gold will be put back under pressure," James Moore, analyst at TheBullionDesk.com, said in a note.

Normally, higher inflation is bullish for gold, but when accompanied by tighter monetary policy and so higher interest rates, it increases the opportunity cost to investors of holding zero-yielding bullion.

"For the time being, with U.S. government bond yields above 5 percent, increased volatility in the U.S. dollar and uncertainty regarding the inflation outlook worldwide, investors would be more and more enticed to invest in U.S. government bonds as opposed to gold," Standard Bank said in a report.