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Gold hits 6-week low as equities weaken, dollar firms

Gold fell 1 percent on Tuesday as the dollar firmed and stock markets dropped, with appetite for assets seen as higher risk hurt by a credit downgrade of five Spanish regions and by soft corporate earnings reports.

Soft results statements from the likes of DuPont, United Technologies and Caterpillar have undermined stock markets, while Moody’s decision to cut its ratings on regions such as Catalonia pushed the euro zone debt crisis into the spotlight.

Pressure on gold from weakness in stocks helped push prices to six-week lows at $1,705.60 an ounce, putting it on track to decline in October for the first month in five.

Spot gold was down 1.1 percent at $1,708.60 an ounce at 1241 GMT, while U.S. gold futures for December delivery were down $11.50 an ounce at $1,714.80.

The metal has struggled for traction after twice failing to break through the $1,800 level. It hit a 2012 high earlier this month at $1,795.69 after the Federal Reserve unveiled a fresh round of quantitative easing measures to stimulate growth.

Attention is now turning to the meeting of the U.S. Federal Reserve in Washington on Tuesday and Wednesday. While the Fed is not expected to add to last month’s QE pledge, its comments will be closely watched for clues on the next direction of policy.

The Fed explicitly tied its $40 billion a month programme to the health of the U.S. jobs market. While some recent data have been encouraging, the jobless rate remains elevated at 7.8 percent.

Support seen

From a technical perspective, analysts who study past price patterns for clues on the next direction of trade flag up support at the key psychological level of $1,700 an ounce.

Below that, it is expected to hit more support at $1,693, a key retracement in its rally from the year’s low in May to its recent high.

Commerzbank said in a weekly report that current weakness could open up “a retreat to the $1,697.30/$1,693.42 support area - the late March high and 38.2 percent Fibonacci retracement - will be back in play”.

“In this scenario it is also possible that the 200-day moving average at $1,663.25 will be revisited,” it said.

In India, historically the world’s largest bullion consumer, demand picked up as prices dipped ahead of a key festival season that is seen as an auspicious time to buy gold.

Gold-backed exchange-traded funds, which issue securities backed by physical metal, saw inflows on Monday of around 112,223 ounces, with the bulk of inflows moving into New York’s SPDR Gold Trust.

Harmony Gold Mining, South Africa’s third-largest gold producer, on Tuesday issued striking miners at one of its South African mines with a dismissal ultimatum, saying the strike had already cost it 13,000 ounces in lost production.

Among other precious metals, silver was down 1.76 percent at $31.82 an ounce, while spot platinum was down 1.83 percent at $1,572.99 an ounce and spot palladium was down 3.45 percent at $598.22 an ounce.