Gold holds near $1,230, Fed eyed

By Manolo Serapio Jr

SINGAPORE (Reuters) - Gold steadied near $1,230 an ounce on Wednesday, clinging to modest gains from the previous session, ahead of the next guidance from the Federal Reserve on whether it will hike U.S. interest rates sooner or keep them lower for longer.

The Fed wraps up its two-day policy meeting later on Wednesday at which it is expected to end its bond purchases amid signs of strength in the U.S. economy.

But policymakers will likely reinforce its stated willingness to wait longer before raising interest rates after a volatile month in financial markets.

"The potential for surprise out of the Fed tonight is probably pretty low. QE (quantitative easing) will end but I don't think they'll deviate from what they've said previously," said Victor Thianpiriya, analyst at Australia and New Zealand Banking Group.

Keeping U.S. interest rates lower for a longer period bodes well for a non-interest bearing asset such as gold.

Spot gold was up 0.1 percent at $1,229.25 an ounce by 0213 GMT, after gaining 0.2 percent on Tuesday.

U.S. gold futures were nearly flat at $1,229.30 an ounce.

Data released on Tuesday gives the U.S. central bank reason to hold off from tightening its monetary policy, with demand for U.S.-made capital goods falling the most in eight months in September.

The U.S. housing sector also remained largely soft. The S&P/Case-Shiller composite index of home prices in 20 metropolitan areas gained 5.6 percent in August from a year earlier, the slowest annual increase since November 2012.

But Thianpiriya said the key threat to gold is the weakness in demand from China, the world's biggest consumer of the precious metal.

"To me the most important thing is that Chinese buyers have been absent for most of this year and that hasn't supported the price of gold," said Thianpiriya who sees gold slipping to $1,180 by December.

In 2013, China imported a record 1,158.162 tonnes of gold from Hong Kong - the main conduit for gold into the mainland - spurred by a 28 percent drop in global prices.

But Chinese demand has since waned with gold prices largely steady this year after recovering from 15-month lows reached in early October.

Elsewhere, Russia increased its gold reserves for a sixth straight month in September, while Azerbaijan added to its holdings for a second month, according to data from the International Monetary Fund.

(Reporting by Manolo Serapio Jr.; Editing by Himani Sarkar)