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Gold eases on steady dollar

London, September 4, 2013

Gold eased on Wednesday, following the previous session's gains, as the dollar rose after strong US data boosted prospects the Federal Reserve may trim its stimulus this month, but prices held above $1,400 on continued concerns around Syria.

The metal rose as much as 1.4 per cent on Tuesday after President Barack Obama won the backing of key figures in the US Congress, including Republicans, in his call for limited strikes on Syria to punish the government for its suspected use of chemical weapons against civilians.

Spot gold was down 0.6 per cent to $1,403.14 an ounce by 1141 GMT. US gold futures for December fell $8.30 an ounce to $1,403.70.

"Syria is obviously still lending support but as the days go and we approach the US jobs report on Friday and more importantly the Fed meeting later this month, the market is getting nervous about a possible start to QE tapering and we see some price weakness," Saxo Bank senior manager Ole Hansen said.

Gold rose to a 3-1/2 month high of $1,433.31 an ounce last week, when a US strike on Syria seemed imminent, before retreating when President Obama decided to seek congressional approval and the British parliament voted against any involvement in the possible strike.

"A key reason for gold to rally in response to Mideast tensions is the potential for oil supply disruptions that a US strike or an escalation of the conflict may trigger," HSBC said in a note.

The positive correlation between gold and oil has been restored in the past few sessions as gold is seen as a hedge against oil-led inflationary pressures. Brent crude was also weaker on Wednesday, but holding around $115 a barrel.

The dollar steadied around an earlier six-week peak, as encouraging US data on Tuesday showed that the economy continues to gather momentum. Gold, however, paid little heed to the data, as investors concentrated on Syria.

Usually, gold holds an inverse correlation with the US currency, with a stronger greenback making the metal denominated in dollar more expensive for holders of other currencies.

FED TAPERING

Markets were awaiting jobs data on Friday, which analysts said would give clues on whether the US Fed will curtail its commodities-friendly stimulus measures as soon as this month. The central bank holds a two-day policy meeting on September 17 and 18.

A scaling-back would hurt gold prices, which have been boosted by increased central bank liquidity over the past four years.

"Syria will continue to dominate headlines in choppy gold trading," VTB Capital said in a note. "However, the US jobs report later in the week will steal some attention, especially given ongoing QE3 (stimulus) uncertainty."

Labour strikes began in South Africa's gold mines on Tuesday but main mining union National Union of Mineworkers (NUM) said on Wednesday it had offered to lower its wage increase demands to gold companies, raising hopes of a possible compromise that could limit the duration of the action.

Spot silver dropped 1.5 per cent to $23.77 an ounce. Spot platinum fell 0.5 per cent to $1,521.49 an ounce, while spot palladium was down 1.5 per cent at $705.50 an ounce. - Reuters




Tags: US | Gold | data | Syria | Dollar | Fed | Obama | concern |

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