Gold Declines in Asia Before Fed's Decision on Interest Rates

By Feiwen Rong

June 25 (Bloomberg) -- Gold fell in Asia amid investor concerns that the dollar may gain as the U.S. Federal Reserve is forecast to keep borrowing costs unchanged later today, ending a run of seven interest-rate cuts.

Gold has gained 6.5 percent this year while the dollar has fallen 6.3 percent against the euro as investors usually buy gold as an alternative investment when the dollar is weakening. The dollar traded at $1.5562 per euro at 2:43 p.m. in Singapore from $1.5568 in late New York yesterday. It touched a record low at $1.6019 on April 22.

Traders ``will be closely watching the committee's accompanying statement for clues as to their future bias towards rates,'' Darren Heathcote, head of trading at Investec Bank Ltd., wrote in a report today.

Bullion for immediate delivery fell 0.2 percent to $887.90 an ounce at 3 p.m. in Singapore, from $889.60 yesterday in New York. Silver was little changed at $16.685 an ounce.

Futures contracts on the Chicago Board of Trade show a 35 percent chance the Fed will increase the target rate for overnight lending between banks by at least a quarter-percentage point at its August meeting, down from 47 percent odds a week ago after reports yesterday showed consumer confidence dropped to a 16-year low and house prices plunged in April.

Gold Holdings

``The market is wanting to get clues as to which way the Fed believes the economic winds are blowing,'' David Thurtell, metals analyst at BNP Paribas in London, said in a report yesterday.

Assets in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, advanced for a fourth consecutive day on June 23 to 628.21 tons, the highest since April 22, according to the SPDR Goldshares Web site. Holdings reached 663.83 tons on March 17, as bullion prices rose to a record $1,032.70 an ounce.

There is ``a large possibility'' gold prices could retest the all-time high, if the holdings continued to gain toward the March level, Adrian Koh, analyst at Phillip Futures Pte in Singapore, said in a report today.

Gold for August delivery was little changed at $889.90 an ounce in after-hours electronic trading on Comex at 2:46 p.m. Singapore time.

Gold for April 2009 delivery fell 12 yen, or 0.4 percent, to 3,104 yen a gram ($896 an ounce) on the Tokyo Commodity Exchange at 4:02 p.m. local time. Gold for December traded in Shanghai was little changed at 196.98 yuan a gram ($892 an ounce).

To contact the reporter for this story: Feiwen Rong in Singapore at frong2@bloomberg.net