Gold turns higher as dollar drops vs. euro amid Fed uncertainty

Investing.com - Gold futures revered earlier losses to turn modestly higher on Tuesday, as the U.S. dollar fell to a six-month low against the euro amid ongoing speculation over the timing of possible tapering by the Federal Reserve.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at USD1,367.60 a troy ounce during U.S. morning hours, up 0.15%.

Gold prices fell by as much as 1% earlier in the session to hit a daily low of USD1,351.90 a troy ounce.

Gold futures were likely to find support at USD1,318.10 a troy ounce, the low from August 15 and resistance at USD1,384.00, the high from August 19.

The December contract settled down 0.4% at USD1,365.70 a troy ounce on Monday.

Tuesday’s turnaround coincided with the euro climbing to the highest level since February 14 against the U.S. dollar.

The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was down 0.5% to trade at 80.89, the weakest level since June 19.

Dollar weakness usually benefits gold, as it boosts the metal's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.

Prices were lower earlier in the session as investors remained cautious ahead of the minutes of the Fed's July meeting, due out on Wednesday, for further indications as to when the central bank may start to unwind its USD85 billion-a-month asset purchase program.

The central bank is scheduled to meet September 17-18 to review the economy and assess policy.

Moves in the gold price this year have largely tracked shifting expectations as to whether the U.S. central bank would end its quantitative easing program sooner-than-expected.

U.S. data on initial jobless claims and the housing sector later in the week will also be closely watched.

Gold traders have closely been looking out for U.S. data reports recently to gauge if they will strengthen or weaken the case for the Fed to reduce its bond purchases.

Any improvement in the U.S. economy was likely to reinforce the view that the central bank will begin to taper its bond purchase program in the coming months.

An exit from the stimulus would deal a heavy blow to gold, which has thrived on demand from investors who buy gold to hedge against the inflationary risks of loose monetary policies.

The precious metal is on track to post a loss of approximately 19% on the year amid concerns the Fed will start to unwind its stimulus program by the year's end.

Elsewhere on the Comex, silver for September delivery fell 0.9% to trade at USD22.95 a troy ounce. Futures came under pressure as investors cashed out of the market to lock in gains after prices hit a 14-week high of USD23.60 a troy ounce on Monday.

Prices are up 20% since hitting a three-year low of USD18.19 on June 28, placing it in bull-market territory.

Meanwhile, copper for September delivery was little changed to trade at USD3.332 a pound.