Gold rebounds 1 pct ahead of Fed meeting

Spot gold was up 0.9 percent at $1,845.30 an ounce at 1155 GMT. On Monday it dropped 3.6 percent, its biggest one-day loss since Feb. 2010, as investors cashed in gains after an early rise to record highs above $1,911.46.

Gold has still risen 13.5 percent this month, its biggest one-month gain in 12 years, as a US debt downgrade, worries over the euro zone debt crisis and talk of a further round of US monetary easing fuelled investment.

Speculation is rife that Federal Reserve Chairman Ben Bernanke could announce a third round of quantitative easing — put simply, printing money — to stimulate the sluggish US economy at the meeting in Wyoming starting on Thursday.

“All eyes are on tomorrow and what Bernanke says in the Jackson Hole speech in Wyoming,” said Carl Firman, an analyst at VM Group. “You will see a lot of swings in price as sentiment changes — will they introduce QE3 or won’t they? That will have a marked effect on the gold price.”

The dollar held steady versus the euro ahead of the meeting, though the European currency was briefly pressured by weaker-than-expected German IFO business climate data.

Gold’s formerly close inverse relationship with the dollar has faded in recent years as foreign exchange volatility has picked up, making the precious metal an attractive hedge against weakness in all currencies.

Meanwhile, European shares eased, pressured by mixed corporate results and uncertainty over US monetary easing. Gold has benefited as an alternative asset from recent economic weakness and consequent stock market losses.

Analysts say gold is likely to remain in a structural uptrend. While it could be vulnerable to a sharp correction after this month’s sharp run higher, especially if no quantitative easing is announced at Jackson Hole, this is likely to present a key buying opportunity for investors.

“You could easily drop $200, $300 — that is not going to disturb the (long-term bull market),” said Ashok Shah, chief investment officer at London & Capital.

US gold futures for August delivery eased $13.30 an ounce to $1,848.00.

Margins eyed

Investors also are watching for potential gold margin requirement hikes from the CME Group, after the Shanghai Gold Exchange raised margins on some of its gold forward contracts twice this month.

The CBOE gold volatility index is at its highest since April 2009. The Hong Kong Mercantile Exchange also raised the margin requirement on its gold futures contract on Aug. 23 by nearly 26 percent.

“The CME has already hiked margin requirements for gold futures (earlier this month), throwing off smaller market participants and triggering a small price pullback,” said VTB Capital analyst Andrey Kryuchenkov in a note.

“Players are already concerned about another margin hike while the Shanghai Gold Exchange also increased its gold margin requirements for gold forwards overnight yesterday.”

Holdings of the SPDR Gold Trust , the world’s largest gold-backed exchange-traded fund, fell by nearly 25 tonnes on Tuesday, their biggest one-day outflow since Jan. 25.

But gold buyers rushed into Asia’s physical market on Wednesday, after prices retreated from the record high hit in the previous session, as investors maintained interest in bullion due to a shaky global growth outlook.

Among other precious metals, silver was flat at $41.82 an ounce, spot platinum was up 0.4 percent at $1,864.24 an ounce, and spot palladium was up 0.3 percent at $759.22 an ounce.

Palladium has been the big loser of the precious metals complex this month, easing 10 percent at a time when gold has soared, and even fellow industrial precious metals platinum and silver have eked out some gains.

“Platinum is viewed as a precious metal and a good store of value, while palladium is more firmly in the industrial metal camp,” said Standard Chartered in a note.