Gold hits three-week low of $1,356.85 an ounce
Singapore: Gold slipped to a three-week low on Wednesday before recovering on bargain hunting, but the precious metal was losing its safe-haven appeal for investors on hopes a US military strike against Syria could be averted.
Syria has accepted a Russian proposal to give up chemical weapons but US President Barack Obama said it was too early to tell if the initiative would succeed, vowing to keep military forces at the ready to strike if diplomacy fails.
Gold, which has fallen more than 18 percent this year, is also being hurt by expectations the US Federal Reserve will opt to taper its monetary stimulus programme after the Fed's Open Market Committee meeting on September 17-18.
Spot gold hit a low of USD 1,356.85 an ounce, its weakest since August 22, and was steady at USD 1,364.01 by 0343 GMT. The Fed's three quantitative easing schemes have buoyed prices of gold and other commodities.
"It's really a confluence of three things," said Mark Keenan, a cross-commodity research strategist at Societe Generale in Singapore.
"Currency weakness, specifically in India, the tapering that we believe will be announced in (FOMC) meeting, and a slight deterioration in the requirement of having a safe haven in the light of these strikes in Syria possibly being averted."
US gold was little changed at USD 1,364.20 an ounce.
Asian shares rose on Wednesday, on track to post their 10th straight day of gains, while investors gave the safe-haven yen a wide berth as optimism for the Chinese economy grew and worries about US military strikes on Syria receded.
US crude for October delivery was down 54 cents at USD 106.85 a barrel.
"Over the days ahead, we likely will see various markets continue to breathe a bit easier, meaning that the crude oil markets will likely remain very vulnerable to more downside pressure," said Edward Meir, an analyst at INTL FC Stone.
"Although gold may decline in sympathy as well, we think it is in store for a much larger break once the Fed announces its tapering decision next week."
The physical market has yet to pick up in Asia and other regions even though gold has fallen below the psychological level of USD 1,400 an ounce. In top consumer India, a sharply lower rupee curbed buying interest despite an approaching festival.
"Physical buying is very price-sensitive, and the bulk of the buying was seen more towards the USD 1,300 level. One of the main things which we've seen contributing to the decline in the physical buying has been the weakness in the rupee," said Keenan of Societe Generale.
India's gold demand picks up between August and October, when consumers buy bullion to celebrate festivals, peaking with the Diwali festival of lights which falls in November this year.
Gold is one of the biggest items in a record current account deficit that has helped push the rupee to an all-time low. The government has raised the import duty on gold to an all-time high of 10 percent.