Gold dipped on Tuesday, with investors adopting a cautious stance ahead of a Federal Reserve policy statement later in the day as they weighed up the prospect of the bank outlining fresh measures to stimulate U.S. growth.
A spate of soft U.S. economic data has fuelled speculation the Fed may extend its bond-buying scheme, dubbed Operation Twist, beyond its June deadline, a less extreme step than outright purchases of new securities, known as quantitative easing.
Gold prices are up more than 3 percent so far in June after four straight months of declines after an extremely poor May payrolls report prompted talk of fresh QE. If the Fed fails to support that speculation, they could correct.
Spot gold was down 0.6 at $1,607.56 an ounce at 0805 EDT against $1,616.60 late on Tuesday, while U.S. gold futures for August delivery were down $7.10 an ounce at $1,616.10.
It's most likely we will get an extension to Twist and an 'open door' to further stimulus, but no QE3 as such, Andrey Kryuchenkov, an analyst at VTB Capital PLC, said. Markets could well be disappointed.
He said he was not expecting a breach of $1,600 an ounce, however.
A Reuters poll of 49 economists conducted early in June reflected a 45 percent chance the Fed would eventually undertake another round of stimulus, well above the 30 percent chance returned in a similar poll on May 15.
Further monetary easing would maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom as well as weighing on the dollar, which would stoke demand for the metal as an alternative store of value.
European stocks firmed a touch ahead of the announcement, and the euro firmed very slightly in early trade.
Bets on more monetary stimulus from the U.S. central bank and action to help shield Spain and Italy were reflected in some markets, however, pushing German Bund futures to six-week lows and pressuring Spanish 10-year yields.
From a technical perspective, gold remains supported in the $1,580-$1,600 area, analysts who study past price patterns for clues as to the future direction of trade said.
Gold is still rangebound within the confines of its major 1532.20/1522.48 support zone (September and December 2011 lows) and the 1641 current June peak, Commerzbank said in a note.
It is quite possible, though, that the current June high at 1641 will be surpassed this week and that the 50 percent retracement of the February-to-May decline and the 200-day moving average at 1668 will be reached before another medium-term down leg rears its head.
The bank said it would retain its medium-term bearish forecast on gold unless two daily closes above the May high at 1672.10 were made.
Gold-backed exchange-traded funds have seen buying interest in recent weeks, Reuters data showed, with the largest, New York's SPDR Gold Trust, already on track for its biggest monthly inflow since February, with holdings up 11.4 tonnes.
Appetite for gold in major consumer India was blunted by a persistently weak rupee. Jewelers there are also watching the progress of the monsoon, which could set the tone for demand during the next festive season.
Silver was down 0.3 percent at $28.30 an ounce, while spot platinum was down 0.5 percent at $1,464.75 an ounce and spot palladium was down 0.8 percent at $619.48 an ounce.