U.S. Markets closed

Gold hits three-week low as easing Syria tensions dent safe-haven appeal

A pawn shop worker prepares jewellery and luxury watch for photographs at Easy Money pawn shop in Bangkok, August 27, 2013. REUTERS/Athit Perawongmetha/Files

By Lewa Pardomuan

SINGAPORE (Reuters) - Gold slipped to a three-week low on Wednesday before recovering on bargain-hunting, but hopes a U.S. military strike against Syria could be averted dented its safe-haven appeal.

Syria has accepted a Russian proposal to give up chemical weapons but U.S. President Barack Obama said it was too early to tell if the initiative would succeed, vowing to keep military forces at the ready to strike if diplomacy fails.

Gold, which has fallen more than 18 percent this year, is also being hurt by expectations the U.S. Federal Reserve will opt to taper its monetary stimulus programme after a meeting on September 17-18.

Spot gold hit a low of $1,356.85 an ounce, its weakest since August 22, and stood at $1,366.61 by 0632 GMT, up

$3.02 on the day. The Fed's three quantitative easing schemes have buoyed prices of gold and other commodities.

"It's really a confluence of three things," said Mark Keenan, a cross-commodity research strategist at Societe Generale in Singapore.

"Currency weakness, specifically in India, the tapering that we believe will be announced in (the Fed) meeting, and a slight deterioration in the requirement of having a safe-haven in the light of these strikes in Syria possibly being averted."

U.S. gold rose $2.80 an ounce to $1,366.80.

Asian shares climbed on Wednesday and were on track to post their 10th straight day of gains, curbing appetite for gold.

U.S. crude for October delivery was down 54 cents at $106.85 a barrel.

"Over the days ahead, we likely will see various markets continue to breathe a bit easier, meaning that the crude oil markets will likely remain very vulnerable to more downside pressure," said Edward Meir, an analyst at INTL FC Stone.

"Although gold may decline in sympathy as well, we think it is in store for a much larger break once the Fed announces its tapering decision next week."

The physical market has yet to pick up in Asia and other regions even though gold has fallen below the psychologically key level of $1,400 an ounce. On the other hand, sales of scrap subsided in Singapore, keeping premiums for gold bars unchanged at $1 to $1.50 an ounce to spot London prices.

In top consumer India, a sharply lower rupee curbed buying interest despite an approaching festival.

"Physical buying is very price-sensitive, and the bulk of the buying was seen more towards the $1,300 level. One of the main things which we've seen contributing to the decline in physical buying has been the weakness in the rupee," said Keenan at Societe Generale.

Indian gold demand typically picks up between August and October, when consumers buy bullion to celebrate festivals, peaking with the Diwali festival of lights which falls in November this year.

Gold is one of the biggest items in a record current account deficit that has helped push the rupee to an all-time low. The government has raised the import duty on the metal to a record high of 10 percent.

(Editing by Muralikumar Anantharaman and Joseph Radford)