LONDON (Reuters) - Gold prices held near $945 an ounce in Europe on Wednesday as caution ahead of the Federal Reserve announcement on monetary policy later in the session kept investors on the sidelines.
Weakness in physical demand is also preventing prices from rising, with the world's largest gold-backed exchange-traded fund recording a further outflow on Tuesday.
Spot gold was bid at $944.70 an ounce at 1335 GMT (9:35 a.m. EDT), against $944.55 an ounce late in New York on Tuesday. U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange eased 10 cents to $947.50.
Investors are cautious ahead of the Federal Open Market Committee's decision on rates and accompanying statement at 1815 GMT, analysts said.
"There could be increased volatility after the release of the FOMC statement," said Peter Fertig, a consultant at Quantitative Commodity Research.
"The Fed is likely to repeat Bernanke's assessment that the economy is slowly recovering. On one hand, recovery would be a factor indicating that investors might take more risk again, which would be negative for dollar but positive for gold."
"But on the other, if he is emphasizing a slow recovery, in that case the impact might be a little be dampened or even to the opposite effect."
The dollar softened a touch against a basket of six major currencies on Wednesday ahead of the decision, while oil hovered below $70 a barrel as the market awaited U.S. inventory data and the results of the Fed meeting.
On other markets, European shares turned higher, reversing early losses, as utility E.ON (EONGn.DE: Quote, Profile, Research) released positive earnings. U.S. stocks opened lower.
SOFT DEMAND
Investment demand for physical gold remains soft, with the world's largest bullion-backed exchange-traded fund, the SPDR Gold Trust, reporting a new outflow. Its holdings have fallen more than seven tonnes in the last week.
"With more investor redemptions expected after a further 3 tonnes of gold was cut from the SPDR ETF yesterday, gold will remain at risk to further pressure," said TheBullionDesk.com analyst James Moore.
But gold buying is picking up in the world's largest bullion consumer, India, as jewelers take advantage of a price decline to stock up during the festive season.
India celebrates the festivals of Raksha Bandhan, Janmasthami and Ganesh Chaturthi in August.
In supply news, gold producer Harmony Gold Mining (HARJ.J: Quote, Profile, Research) said a mineworker died after an accident at its Elandsrand mine in South Africa on Friday. [ID:nWEA5818] Production was suspended and is likely to restart on Thursday, it said.
Aquarius Platinum (AQP.AX: Quote, Profile, Research), the world's number four producer of the white metal, announced a full-year net loss of $45.7 million, blaming a slide in metals prices. Platinum fell 47 percent last year as the economic slowdown hit demand.
The company said its production of platinum group metals fell 9 percent to 455,675 ounces in its last financial year.
Platinum was at $1,229 an ounce against $1,237, while palladium was at $266.50 against $271. Silver was at $14.31 an ounce against $14.27.
(Additional reporting by Martina Fuchs; Editing by Sue Thomas)
