Gold steadied on Wednesday ahead of a U.S. Federal Reserve announcement on monetary policy later in the day, with waning interest in the metal as a haven from risk keeping prices near the previous session's three-month low.
The main gold exchange-traded fund, the SPDR Gold Trust, recorded its biggest ever one-day outflow on Tuesday.
Spot gold was bid at $1,331.60 an ounce at 1302 GMT, against $1,332.75 late in New York on Tuesday. U.S. gold futures for February delivery fell $1.20 to $1,331.10 an ounce.
The precious metal is taking some support from physical demand after its slide to its lowest since October 28, but buying interest remains lackluster.
It looks like we have had a clearout and the correction has brought back some buyers, said Saxo Bank senior manager Ole Hansen. Interesting that the sell-off has happened during a time when inflation has been picking up and the dollar has been weakening. Both factors are usually supportive of gold.
The switch toward cyclicals has played its role, with global growth projections being revised higher.
Hopes that the economic recovery is on track have benefited other assets, like stocks. European shares climbed on Wednesday after U.S. President Barack Obama proposed to cut corporate tax rates. Analysts said Obama's State of the Union address had diminished chances of a double-dip recession. .EU
Industrial commodities also rose, with oil climbing toward $87 a barrel and copper up more than 1 percent.
We expect gold and silver to be particularly weak, with the wider backdrop of improving macroeconomic demand supporting industrial metals and reducing safe-haven buying, said Standard Chartered in a weekly note.
FED ANNOUNCEMENT EYED
The financial markets are now awaiting an announcement from the U.S. Federal Reserve at the end of its two-day meeting on monetary policy at around 1915 GMT.
The Fed is likely to acknowledge an improving economic outlook, analysts said, though it is expected to reaffirm a plan to buy $600 billion in government debt to help speed recovery.
From a technical perspective, gold has entered a negative pattern, though it remains above key support levels, according to analysts who study charts of past price moves to determine the future direction of trade.
The fact that gold has slipped through the head and shoulders' neckline at $1,360.04 and also the early January $1,352.70 low is bearish and confirms a medium term top, said Commerzbank in a weekly report.
The first downside target is seen at $1,329.45/1,314.50. This consists of the mid-November and late October lows and should act as interim support, at least for a few days.
In the medium term, platinum may be set to outshine gold, with the white metal's bull trend conditions remaining intact, analysts said.
Spot platinum was bid at $1,791.15 an ounce against $1,784.50, while palladium was at $789.35 against $778.72. Both are expected to rise this year and next as their underlying fundamentals tighten.
On the supply side, palladium mine production has been relatively subdued, said Bank of America Merrill Lynch analyst Michael Widmer in a weekly report.
Deliveries from Russian stockpiles have also subsided. This is significant because the nation's de-stocking often switched a structural deficit into an oversupplied market during the past few years.
Silver was bid at $26.92 an ounce against $26.84.