(Recasts, updates with quotes, closing prices, market
activity, adds NEW YORK to dateline)
By Frank Tang and Atul Prakash
NEW YORK/LONDON, April 29 (Reuters) - Gold ended sharply
lower after hitting a three-month bottom on Tuesday on the back
of a firmer dollar, declining oil prices and weak sentiment
ahead of an interest rate decision by the Federal Reserve.
Gold often takes its cue from movements in the dollar
because of its role as an alternative investment to currencies,
stocks and bonds. The outcome of the Fed meeting would set the
tone for currencies and precious metals, dealers said.
"Strength in the U.S. dollar is clearly a major factor,
plus we have seen a quite bit of money coming out of the
StreetTRACKS exchange-traded fund. Both these things are
weighing on the market," said Dan Smith, analyst at Standard
Chartered Bank.
"There is some indication of consumers starting to come
back in at these lower prices, but we are waiting to see how
powerful that would be. I am looking for prices to recover
somewhat from where we are now," he said.
Gold held in StreetTRACKS Gold Shares <XAUEXT-NYS-TT>, the
world's largest gold-backed ETF, fell more than 50 tonnes in
less than a week to about 591 tonnes as of Monday.
Spot gold <XAU=> fell as low as $868.80 an ounce, the
lowest price level since Jan 22.
It was at $873.55/874.75 at 2:15 p.m. EDT (1815 GMT),
against $891.65/892.65 late in New York on Monday, when it hit
an intraday day high of $895.50 on speculative buying driven by
record high oil.
Jonathan Jossen, independent floor trader in New York, said
that gold's fundamentals remained firm in spite of a recent
sell-off due to the dollar's strength.
"The only thing that I can see why gold should slip is that
we get deeper into a recession, and maybe that will bring
commodity prices down and bring inflation down," Jossen said.
The dollar hit its highest level against the euro in nearly
four weeks, on track for its largest monthly gain in nearly a
year, amid expectations the Federal Reserve will signal the end
of its easing campaign.
The Fed will begin its two-day meeting later on Tuesday and
analysts expect the policy-setting body to cut key borrowing
costs by a quarter percentage point to 2.0 percent and indicate
that its rate-cutting campaign is finished for now.
A firmer dollar makes gold costlier for holders of other
currencies and often lowers bullion demand. The metal is also
generally seen as a hedge against oil-led inflation.
Oil fell more than $3 a barrel, retreating further from a
record high hit on Monday. U.S. crude futures <CLc1> ended down
$3.12 at $115.36 a barrel.
FED DECISION AWAITED
George Gero, vice president with RBC Capital Markets Global
Futures in New York, said that the Fed meeting will be closely
watched. The U.S. central bank is expected to slash rate by 25
basis points to 2 percent on Wednesday. <FEDWATCH>
Gero also cited a lower open interest in the U.S. gold
futures market, larger gold delivery notices and chart-based
selling below $880 an ounce for bullion's drop.
Spot gold has been trading well below its lifetime high of
$1,030.80 an ounce hit on March 17, with attempts to revisit
the level resulted in heavy profit-taking by investors.
U.S. gold futures for June delivery <GCM8> on the COMEX
division of the New York Mercantile Exchange settled $18.70, or
2.1 percent, at $876.80 an ounce on Tuesday.
In industry news, Penoles <PENOLES.MX>, Mexico's largest
producer of refined silver, declined sharply on Tuesday,
falling 6 percent one day after the company posted a slight
drop in first-quarter net profit.
Silver <XAG=> fell to $16.48/16.57 from $16.96/17.02 an
ounce late in New York on Monday.
Other precious metals also fell, with spot platinum <XPT=>
dropped sharply to $1,909.50/1,929.50 an ounce from
$1,964.50/1,974.50, while palladium <XPD=> dropped to $419/427
an ounce from $432.50/438.50 in the U.S. market late on
Monday.
