Investing.com - Gold held mostly steady in Asia on Tuesday with investors set for volatility ahead of the Federal Reserve's December meeting.
On the Comex division of the New York Mercantile Exchange, gold for December delivery traded between small gains and losses at around $$1,068.40 a troy ounce.
Silver for December delivery was quoted flat at $14.085 a troy ounce. Copper for March delivery rose 0.27% to $2.021 a pound.
Gold dropped considerably to retreat to near five-and-a-half year lows, as the Federal Reserve spooked markets by holding an unscheduled meeting on Monday mornings to discuss the possibility of raising a key rate charged to commercial banks on loans.
On Monday morning, the Federal Reserve Board of Governors scheduled a closed-door meeting, held under expedited procedures, to review the discount rates charged by its regional banks.
The discount rate is the interest rate charged to commercial banks on loans they receive from their regional Federal Reserve Bank lending facilities, also known as the discount window. When the Fed increases the discount rate, it makes the borrowing costs for banks more expensive, decreasing the money supply in the system.
The discount rate differs from the Federal Funds Rate, which is the rate banks lend to one another on overnight loans for funds maintained at the Federal Reserve. In February, 2010, the Fed increased the spread between the discount rate and the top of the target range of the Federal Funds Rate to 50 basis points. It came nearly two years after the Fed reduced the spread to 25 points in March, 2008, in an effort to bolster liquidity.
The Federal Funds Rate has remained at a level between zero and 0.25% for nearly seven years, since December, 2008. The announcement of the previously unscheduled meeting helps raise speculation that the U.S. central bank will lift the Fed Funds Rate when it meets next on Dec. 15-16. The Fed last held an unscheduled meeting in December, 2012. An initial rate hike is viewed as bearish for gold, which is not attached to dividends or interest rates and struggles to compete with high-yield bearing assets.