Gold futures are weaker Wednesday morning as the U.S. dollar extends its recent gains and on position squaring ahead of the outcome of a Federal Open Market Committee meeting and due to ongoing debate about banking regulations proposed last week for the U.S.
Around 9:05 a.m. EST (1405 GMT), lightly traded but nearby January gold fell $6.90, or 0.63%, to $1,091 an ounce on the Comex division of the New York Mercantile Exchange. Most-active April lost $6.50, or 0.59%, to $1,093.
Most-active March silver fell 30 cents, or 1.78%, to $16.56.
The ability of the dollar to hang onto its recent gains and keep probing slightly higher is pressuring gold, analysts said. The euro fell as far as $1.4021 overnight, its softest level since late July, amid concerns about European debt as Portugal's pledge to reduce its deficit failed to boost confidence among investors.
Gold tends to move inversely to the dollar. Investors often buy gold as a hedge against a weaker dollar and conversely sell when the dollar strengthens.
"You have an FOMC meeting today and uncertainty about the banking situation (after proposed rules from President Obama), so you have people paring back on commodity positions," said Charles Nedoss, senior market strategists with Olympus Futures.
Since speculators are heavily long in gold, this squaring tends to mean selling to exit positions in which traders previously bought.
Meanwhile, Nedoss said, gold is running into technical resistance around $1,100 after rally attempts stalled just above here in recent session.
"People are starting to lighten up on rallies," he said. Nevertheless, the market is also holding above the 100-day moving average, leaving it range-bound at the moment. This average currently passes around $1,087.10 for the April futures.
A statement following a two-day FOMC meeting is expected around 2:15 p.m. EST (1915 GMT). In particular, traders will be watching to see if the Fed drops its "extended period" reference to low interest rates.
If the Fed statement were to be seen as a hint of tightening, that would likely boost the dollar and undercut gold, said one trader. Conversely, a dovish stance may limit recent dollar strength and ultimately support gold, he said.
Meanwhile, April platinum was down $12.30 or 0.8%, to $1,519 an ounce. March palladium was down $7.35, or 1.72%, to $420.20.
Pressure on these metals may have come from Toyota Motor Corp.'s (TM) decision to halt sales on eight models, said Tom Pawlicki, an analyst with MF Global. The halt was in response to growing concerns that possible defects may cause the vehicles to accelerate unintentionally.
Platinum and palladium are used for catalytic converters, and therefore tend to react to sales and production trends within the auto industry.
