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Gold Lower on Lack of Safe-Haven Demand

Gold futures fell on Tuesday, moving lower in morning trading as optimism over a reasonably successful Spanish bond auction brought optimism to markets.

Prices rose while the US Federal Reserve began its two-day policy meeting which is widely anticipated to bring new monetary easing measures and a further gain in gold.

Gold for August delivery fell $2.30, or 0.2 percent, to $1,624.30 per ounce on the Comex division of the New York Mercantile Exchange. The precious metal had been trading $10 higher earlier in the session.

The Spanish government bond auction exceeded expectations on Tuesday and this pushed most markets higher, particularly those concerned over Spain’s debt.

“In the longer term, gold will continue to improve through 2012 and into 2013, driven by a growing likelihood of policy action by central banks,” BNP Paribas Precious Metals Strategist Anne-Laure Tremblay said in a note to clients.

“Probable actions include interest rate cuts by the European Central Bank and the People’s Bank of China [and] further quantitative easing by the Federal Reserve,” Tremblay wrote.

The Federal Reserve’s own two-day policy meeting, which began on Tuesday, is generating more and more expectation that the central bank will introduce more easing measures.

“Quantitative easing, or an expansion of a central bank’s balance sheet, is more favorable for gold prices…[as it] tends to have a strong negative impact on the US Dollar and is also more likely to raise inflationary expectations.”

Currently, the Dollar is rebounding after heavy gains in the Euro at the start of trading late Sunday night. The optimism that was generated by the pro-bailout Greek election has already begun to fade.

While a lower dollar does make for good opportunities in gold and silver because the metals trade for less, it has generally been through the inflation produced by Fed policy that generates the nominal gains in precious metals.

As such, all eyes are on the Federal Reserve, which is set to conclude its two-day Federal Open Markets Committee meeting on Wednesday and will be making a policy announcement at the conclusion of that meeting. The announcement by the Fed will undoubtedly affect all markets.

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