Gold slips ahead of Fed meet; fund outflows weigh on sentiment

By A. Ananthalakshmi

SINGAPORE (Reuters) – Gold fell further from a three-week high on Tuesday as investors withdrew money from the top bullion fund at the fastest pace in two months and as markets nervously waited for a Federal Reserve meeting this week.

The metal's fall comes even as most Asian stock markets fell on the deepening conflict in Iraq and a gas dispute between Ukraine and Russia sapped investors' appetite for riskier assets.

Spot gold fell 0.6 percent to $1,264.30 an ounce by 0649 GMT. The metal hit a three-week top of $1,284.85 on Monday before closing down 0.4 percent on profit taking.

"In the short run, worries of conflict might support gold prices, but with limited impact," said Chen Min, a precious metals analyst at Jinrui Futures in Shenzhen.

Chen said she expects prices to fall towards the end of the year when talks of higher rates gain momentum in the United States, just ahead of the expected ending of the Federal Reserve's bond-buying stimulus.

The Fed's two-day policy meeting begins later in the day with a statement expected on Wednesday. Markets are on the watch for any signals on when the central bank might begin raising interest rates.

Investor sentiment was bearish as holdings of SPDR Gold Trust, the top gold-backed exchange traded fund, dropped 4.20 tonnes to 782.88 tonnes on Monday – near a five year low.

The decline is the biggest outflow since mid April.

Gold – considered a hedge against political uncertainties and riskier assets such as equities – could draw support from the Iraq situation.

President Barack Obama considered options for military action to support Iraq's besieged government, while U.S. and Iranian officials held talks to stabilise the region, which has been roiled by the advance of Sunni rebels toward Baghdad.

Another supporting factor could be Russia cutting off gas to Ukraine on Monday in a dispute over unpaid bills that could disrupt supplies to the rest of Europe and set back hopes for peace between the former Soviet neighbours.

Among other precious metals, platinum and palladium ticked higher as markets awaited an end to a five-month long strike at top producer South Africa.

(Editing by Himani Sarkar and Richard Pullin)