Gold Prices Slip on Uncertainty Over Fed Policy

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By Jan Harvey

LONDON -- Gold edged lower on Friday, hurt by a recovery in stock markets and gains in the dollar, as dealers awaited clearer direction on the Federal Reserve's monetary policy.

European shares climbed on Friday and the dollar index rose 0.2 percent as robust U.S. economic data lifted assets seen as higher risk, outweighing persistent uncertainty over the durability of Fed stimulus.

The Fed's next policy meeting takes place early next week. An array of firmer than expected U.S. data of late has fueled speculation it could be on track to rein in its $85 billion monthly bond-buying program.

Spot gold was down 0.4 percent at $1,379.69 an ounce at 9:56 a.m. GMT (5:56 a.m. ET), while U.S. gold futures for August delivery were down $1.60 at $1,379.20. Gold is little changed since last Friday, and has ended the last four weeks in a $10 range.

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"This just reflects a lack of conviction about where the market is going to go next," Standard Chartered analyst Daniel Smith said. "The constant outflows from the exchange-traded funds are bad news, and that hasn't been strongly offset yet by the net managed money positions, although they are turning up."

"There's still an ambiguous picture from investors. People are worried about the withdrawal of quantitative easing, particularly given that the data out yesterday was reasonably good from a U.S. perspective," he added. "There are quite a few negatives at this point. We're pretty neutral on the market."

Ultra-loose monetary policy, especially in the United States, has been a key driver of higher gold prices in recent years. Uncertainty over how long this will last has made traders wary of chasing prices higher after their April crash.

The largest gold-backed exchange-traded fund, New York's SPDR Gold Trust said its holdings declined by another 6.3 tonnes on Thursday, bringing its total outflow for the year to nearly 350 tonnes.

India Demand Soft

Demand in India, the world's largest gold consumer, was muted after the wedding and festival season came to an end, traders said. It is due to restart in August.

Silver was down 0.5 percent at $21.69 an ounce, tracking gold. Spot platinum was down 0.5 percent at $1,443.74 an ounce, while spot palladium was down 0.7 percent at $724.75 an ounce.

Platinum and palladium are set for their biggest weekly falls since the mid-April crash in precious metals prices as concerns about industrial action in major producer South Africa eased a touch and after key technical levels were breached.

The NewGold Platinum ETF launched by Absa Capital in late April, which already accounts for around 20 percent of total global platinum ETF holdings, said its holdings rose by nearly 16,000 ounces or 4.3 percent on Thursday.

"The rapid growth of this fund has been astounding as investors, recognizing the issues facing platinum supply, clearly seek to gain exposure to the metal in preference to the equities, most of which have fared poorly over the same time period," Investec said in a note on Friday.