Gold scrap flow slowed to a trickle on Thursday, as traders moved to the sidelines of the market ahead of a key U.S. Federal Reserve policy decision that is expected to determine the next move in bullion prices.
Spot gold -- which raced to a six-month top of $1,746.50 per ounce on Wednesday -- will be further boosted if the Fed launches a third round of quantitative easing. Rampant cash printing stokes inflation outlook and drives investors to bullion, seen as a good hedge against rising prices.
Dealers reported light selling and buying, as traders and investors remained cautious before the Fed's decision.
"People are waiting to sell when the Fed announces QE3 and give a boost to gold," said a Singapore-based dealer, "The market has gone a lot quieter with everyone waiting for tonight's outcome."
A recent rally in gold from mid-August had triggered a flurry of scrap selling across the region, as investors sought to cash out on their gold holdings as prices had been stagnant for a few months before that.
Spot gold was trading just below $1,730 an ounce by 0807 GMT.
Gold bar premiums eased in Singapore and Hong Kong, with increased supply of gold scrap and buying demand capped by higher prices.
In Singapore, gold bar premiums were quoted in the range of 20 to 40 cents an ounce over London prices. Hong Kong premiums dropped to as low as 30 cents, dealers said.Buying interest was capped after gold prices rallied about 7 percent over the past month on rising expectations for more easing measures from central banks.
Demand from the jewellery sector in India and China remained sluggish, even though both countries -- the world's top two gold consumers -- are approaching festival seasons that usually boost gold buying.
"People are worried about the economy and would rather hold cash in hand," said Dick Poon, manager of precious metals in Heraeus in Hong Kong.
"Buying demand has become very slow after prices have raced to $1,730-$1,740 level."
In India, benchmark gold hit a record high of 32,105 rupees per 10 grams on Wednesday, discouraging buying interest.
In Japan, smelters and recyclers were trying to sell their stocks before the end of the first half of their fiscal year, a dealer said.
The Fed's decision on further quantitative easing will indicate a clear direction for gold prices, while investors will keep a close watch on physical demand from China and India.