Spot market gold prices dropped back towards $1,600 an ounce ahead of Wednesday's US trading – 1.5% down on last week's close – while stocks and commodities were broadly flat and US Treasuries fell ahead of the Federal Reserve policy decision due later today.
Silver prices dropped to $28.08 an ounce – 2.2% down on the week so far.
As well as announcing its latest decisions on interest rate and asset purchases, the Fed will also publish policymakers' economic projections, while Fed chairman Ben Bernanke will give a press conference.
"We think Bernanke will talk up the Fed's readiness to act if required and there is a chance of a policy gesture – an extension to Operation Twist perhaps," reckons Nick Trevethan, Singapore-based senior metals strategist at Australian bank ANZ, referring to the Fed's program aimed at lowering longer-term interest rates.
"But anybody looking for some sort of grand [quantitative easing] scheme risks disappointment," says Trevethan, adding that gold prices could fall as low as $1,530 an ounce "if investors are really disappointed".
"Extending Operation Twist is the path of least resistance," agrees Josh Feinman, global chief economist at Deutsche Bank's asset management arm DB Advisors in New York.
"It would be an extension of something we have in place, so it would be more seamless, and it doesn't complicate exit strategies as much because it's not expanding the balance sheet."
European leaders meantime "will take all necessary measures to safeguard the integrity and stability of the [Euro] area," according to the official communiqué issued at the end of the G20 meeting Tuesday.
"The adoption of the Fiscal Compact [on government budget reforms]," the communiqué adds, "and its ongoing implementation, together with growth-enhancing policies and structural reform and financial stability measures, are important steps towards greater fiscal and economic integration that lead to sustainable borrowing costs."
The communiqué was issued hours after Spain auctioned 12-month bills at an average yield of more than 5%. Yield' on 10-Year debt eased slightly on Wednesday morning, dipping back below 7%.
Europe's major clearing house LCH.Clearnet meantime has raised the margin clients must post against positions in Spanish sovereign debt. The margin on bonds with maturities of between 10 and 15 years, for example, will rise from 13.6% to 14.7%. The clearing house made a similar hike for Italian bond positions last November after yields on those bonds rose above 7%.
Eurozone bailout funds the European Financial Stability Facility and the soon-to-be-activated European Stability Mechanism could be used to buy sovereign bonds directly on the open market, according to a proposal made by Italian prime minister Mario Monti at the G20 summit.
"The idea is to stabilize borrowing costs," said Monti, "especially for countries who are complying with their reform agendas, and this should be sharply distinguished from the idea of a bailout."
French president Francois Hollande, who described yields of 7% on Spanish bonds as "not acceptable", expressed support for Monti's proposal.
"The EFSF already exists," said Hollande, who also repeated calls for joint debt issuance, a financial transaction tax, and for the European Central Bank to play a greater role in fighting the crisis.
"The ESM will soon exist...let's use them at the right moment and with the right dose."
German chancellor Angela Merkel is due to meet with Hollande and Monti, as well as Spanish prime minister Mariano Rajoy, in Rome on Friday.
European leaders "need to deliver something" at next week's European Union summit, one of Merkel's aides told newswire Reuters Tuesday.
"We know the expectations for the EU summit are high," the aide said, "But in reality many countries have still not come to grips with the idea of moving towards greater fiscal integration. It's going to be very hard to deliver the big announcement."
Germany's Constitutional Court meantime has ruled that the German government gave insufficient notice to parliament of plans to set up the ESM, the permanent Eurozone bailout fund due to become active at the start of July. The Bundestag is due to vote on whether to ratify the ESM's creation next week.
Over in Athens, Greek politicians have agreed on the formation of a government, according to Evangelos Venizelos, the leader of Socialist party Pasok.
Pasok, which came third in Sunday's election, will form a government with other so-called pro-bailout parties, first-placed New Democracy and the Democratic Left, Venizelos said Wednesday.
Here in the UK, members of the Bank of England's Monetary Policy Committee "judged that some further economic stimulus was either warranted immediately or would probably become warranted", according to the minutes of the MPC's June meeting published Wednesday.
The minutes add that the MPC is "waiting to see how matters evolve" in the Eurozone before undertaking any action.
The number of unemployed in Britain meantime fell nearly 2% to 2.61 million between February and April, according to official data published Wednesday. In May, however, the claimant count – which measures the number of people claiming jobseeker's allowance – rose by 8100 to 1.6 million.
Gold bullion dealers in India, traditionally the world's biggest gold market, continued to report quiet demand Wednesday.
"Customers are coming to the jewelry shops," says Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation.
"But now they've turned sellers rather than buyers."
Rupee gold prices in Mumbai set a fresh record on Tuesday, the Wall Street Journal reports. The rupee has fallen 25% against the dollar over the last 12 months.
China looks set to overtake India as the world's biggest gold buyer this year.
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