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Gold not far from 5-1/2-year low as investors eye Fed

[MANILA] Gold hovered near its weakest level since early 2010 on Tuesday, reflecting investor hesitation to bid up bullion amid growing expectations of a near-term hike in US interest rates.

The Federal Reserve begins a two-day meeting later in the day where policymakers are likely to signal that a rate hike later in the year is certain as the US economy strengthens.

A further tumble in Chinese equities after their deepest rout since 2007 on Monday has barely affected trading in gold, typically seen as a safe haven. "If anything it's a little bit surprising that we haven't had the safe-haven bid in gold even though you've had these big risk-off moves in the Chinese equity market," said Victor Thianpiriya, commodity strategist at ANZ Bank in Singapore.

Spot gold was up 0.3 per cent at US$1,096.96 an ounce by 0615 GMT. Bullion fell to as low as US$1,077 on Friday, its cheapest since February 2010, stretching its losing run to a fifth week.

The earlier rout in Chinese stocks this month as well the Greek debt crisis had failed to spark any safe-haven bid for gold, with investors largely focused on a looming US rate hike. That has strengthened the dollar and dimmed the appeal of non-interest bearing assets such as bullion.

Investor confidence in gold remained shaky after last week's slide accompanied by big trading volumes in New York and Shanghai. The metal lost more than 3 per cent last week, the most since March.

HSBC, which has slashed its gold price forecasts for this year and next, said the precious metal is likely to remain under pressure in the short term and "could move to within striking distance of US$1,000/ounce before recovering".

The big driver for more price losses for gold is an impending US rate increase and analysts are awaiting more confirmation from the Fed towards that end when this week's policy meeting wraps up on Wednesday. "We're still expecting a fourth-quarter lift-off in the Fed funds rate and that's when you'll see the trough in gold or we could potentially see gold take another leg lower," said Thianpiriya, pegging the next major support at US$1,045 if US$1,080 is breached again.

US gold for August delivery was flat at US$1,097 an ounce. Spot platinum and palladium rose slightly.

Also weighing on sentiment, China's net gold imports from main conduit Hong Kong fell to a 10-month low in June, reflecting weak demand from the major consuming nation.

China's gold imports could fall as much as 40 per cent this year as demand for bullion used to back domestic financing deals decreases, said Michael Mesaric, head of the world's biggest refiner Valcambi.