Gold Prices Rise, Then Hover Around $1,640

(REUTERS) -- Gold prices steadied near $1,640 an ounce in Europe on Tuesday as a softer tone to the dollar arrested the previous session's slide, but traders largely stuck to the sidelines ahead of a key monetary policy meeting of the U.S. Federal Reserve.

Spot gold was at $1,638.30 an ounce at 6:05 a.m. EDT (1005 GMT) against $1,637.63 late on Monday, while gold futures for June delivery were up $6.40 an ounce at $1,639.00.

The Federal Open Market Committee begins a two-day meeting on Tuesday at which quantitative easing is set to be discussed. The FOMC is expected to keep interest rates on hold, but its accompanying statement will be watched for hints of fresh QE.

Ultra-loose Fed policy has kept interest rates and hence the opportunity cost of holding gold low in recent years. Expectations for further easing are supporting gold at present, but a change in that view could damage prices.

Minutes from the Fed's March meeting released this month showed support thinning for further bond purchases.

A Reuters poll last week found a slowly improving jobs market and reasonable growth at the start of the year have improved the economic outlook for 2012, reducing chances the Fed will conduct another round of bond purchases.

Gold was negatively impacted by the Fed pushing back any ideas of further quantitative easing. With the dollar being slightly stronger, there is no reason at the moment to be interested in gold, Citigroup analyst David Wilson said.

The precious metal has shed more than 2 percent of its value so far this month after declining in both February and March, hurt by a 1.3 percent gain in the dollar as the worsening euro zone debt crisis knocked the euro.

The single currency edged back up against the dollar on Tuesday but more gains look unlikely ahead of a debt sale in the Netherlands that will be watched for any sign of lacklustre demand after the country's governing coalition collapsed.

Data from the International Monetary Fund showed central banks continued to make significant gold purchases, with Mexico raising its holdings by 16.8 metric tonnes (18.5 tons) and Russia lifting its reserves by 16.55 tonnes last month. The numbers also showed Argentina increased its gold holdings by 7 tonnes in September.

POOR START

The confirmation of official central buying should help gold find some stability today, after a poor start to the week, UBS said in a note. With positioning light, participants could certainly use this as an excuse to become a little friendlier towards the yellow metal.

But this sentiment is likely to be put on hold until the FOMC meeting is out of the way tomorrow, it added. After all, Fed-speak still remains the largest determinant of gold's direction for now.

Demand for physical bullion in major consumer India picked up a touch on Tuesday, the day of Akshaya Tritiya, a key gold-buying festival, but volumes remained light. Indian gold demand has been depressed this year by weakness in the rand, which makes dollar-priced metal more expensive for local buyers.

Among other precious metals, silver was up 0.1 percent at $30.84 an ounce. The gold/silver ratio, which tracks the number of silver ounces needed to buy an ounce of gold, eased back from a three-month high as the two metals steadied.

Spot platinum was down 0.4 percent at $1,547 an ounce, while spot palladium was up 0.5 percent at $670.97 an ounce.

Swiss trade data showed on Tuesday that Russia's primary palladium exports to Switzerland surged last month to their highest this year, at 2,014 kilograms in March from 68 kilograms in February.

Switzerland's primary platinum exports to China also rose to 1,022 kilograms from 403 kilograms the previous month, the data showed. Its primary platinum imports from major producer South Africa eased a touch to 1,011 kilograms from 1,091 kilograms.

Switzerland is a major clearing hub for platinum, palladium and rhodium, and analysis of its import and export data can give valuable clues on trade flows for the metals.