Wholesale gold bullion prices hovered just below $1,370 an ounce for most of Wednesday morning's London trading, after a "surprise" drop the day earlier, with stocks and commodities also broadly flat this morning ahead of the U.S. Federal Reserve policy announcement later today.
Silver meantime traded around $21.70 an ounce, 1.8% down on where it started the week, as U.S. Treasury bond prices dipped.
On the currency markets the euro and the pound continued to trade near four-month highs against the dollar, close to $1.34 and $1.56 respectively.
A day earlier, gold in dollars hit a one-month low at $1,361 an ounce, a level first passed on the way up in September 2010 and more than 2% down on where it started the week. Euro and pound gold prices both hit fresh two year lows at €1,016 an ounce and £871 an ounce respectively.
"[Tuesday's move] was in thin volume and caught the market slightly by surprise, exaggerating the move somewhat," says David Govett, head of precious metals at broker Marex Spectron. "There was no particular driver for it, just a weary market being taken advantage of."
"Gold remains under pressure in the run-up to today's Fed meeting," says this morning's commodities note from Commerzbank.
As well as announcing its latest monetary policy decision, the Fed will also publish its policymakers' latest economic projects later today. This will be followed by a statement and press conference.
European stock markets were little-changed on the day by Wednesday lunchtime in London, a day after U.S. stock markets posted gains. Since the start of 2013, the S&P 500 is up nearly 16%, on course for its best first half of a year since 1997.
"The recent strength in stocks is attributable to investor expectations that although the Fed may start to signal that it is ready to start its 'tapering' policy [of slowing the pace of quantitative easing asset purchases]...stocks may still benefit, since interest rates, although rising, will still remain fairly uncompetitive," says a note from INTL FCStone metals analyst Ed Meir. "Of course, if the Fed says that the economy remains too weak to be abandoned and decides to stand pat, these calculations will change and we could see a rather sharp correction in stock prices with a corresponding rebound in both bonds and gold."
"Why would they possibly rush to a taper now?" asks UBS economist Drew Matus. "Unemployment is still nowhere near what they consider to be the natural rate, and the inflation number is too low."
U.S. consumer price inflation rose to 1.4% last month, figures published yesterday show, up from a 53-year low of 1.1% in April. The official unemployment rate meantime ticked higher to 7.6% in May. The Fed has previously said it sees exceptionally low interest rates as appropriate while the unemployment rate remains above 6.5%.
"Should the [Fed] not come any closer to giving greater clarification on the asset-buying program," adds HSBC chief commodities analyst James Steel, "then the gold market could rally and investors who have been shorting gold in anticipation of a Fed move away from QE may have to cover...this could prompt a challenge of the $1,400 an ounce level."
"U.S. interest rates will rise over time and only the volatility of this move is in question," says Standard Bank currency strategist Steve Barrow. "This normalization period will see bouts of volatility however well the Fed flags its intentions. The global economy and its financial markets have gorged themselves on the Fed's monetary largesse for many years; draining the punchbowl is bound to spark some fear and panic however the Fed does it."
Outgoing Bank of England governor Mervyn King meantime was one of three Monetary Policy Committee members who voted for more QE at the MPC's monthly policy meeting earlier this month, with six members voting against, minutes published Wednesday show.