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Gold extends gains as US dollar drops ahead of BOJ, Fed meetings

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A weaker US dollar and equities helped gold extend gains into Tuesday, with investors cautious ahead of policy meetings this week at the Bank of Japan and the US Federal Reserve.

[SINGAPORE] A weaker US dollar and equities helped gold extend gains into Tuesday, with investors cautious ahead of policy meetings this week at the Bank of Japan and the US Federal Reserve.

The US dollar fell versus the yen as traders took profits from the greenback's recent rally against the Japanese currency. Expectations of a dovish Fed also hurt the US dollar. Asian stocks retreated as investors were wary of riskier assets ahead of the central bank meetings.

Spot gold had edged up 0.1 per cent to US$1,238.83 an ounce by 0250 GMT, after gaining 0.5 per cent in the previous session.

"The metal continues to be influenced to a large extent by dollar movements," said HSBC analyst James Steel, adding that he expects gold to reach US$1,300 this year.

"As well as a weaker dollar, we see global risks and a modest recovery in oil prices as gold-bullish. The more tame Fed tightening cycle, compared to expectations last year, should also support gold," Mr Steel said.

MKS Group trader Sam Laughlin said support around US$1,230 should keep the metal buoyant, though gains will be limited by the Fed announcement on Wednesday.

Speculation of further easing sent the yen reeling against the US dollar late last week, but uncertainty over whether the BOJ will actually deliver fresh stimulus at its April 27-28 meeting saw the Japanese currency recover some ground.

The Fed also holds a policy meeting this week, with the two-day gathering kicking off on Tuesday. The US central bank is not expected to raise interest rates at the meeting, but markets will be looking for its take on the global economy and its monetary policy outlook.

Economists expect the Fed to deliver a rate hike in June, and follow up with another by year-end. But interest rate futures show less conviction, underscoring an ongoing wide gap between markets and policymakers on the trajectory of rates.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the US dollar.

Assets in SPDR Gold Trust, the largest gold-backed exchange-traded fund, fell 0.3 per cent to 802.65 tonnes on Monday, though remained not too far off a two-year high reached earlier this year.

REUTERS