Gold slid more than 1 percent on Thursday to its lowest since late June after the U.S. Federal Reserve took its first step away from the ultra-loose monetary policy that had helped drive bullion prices to record highs in recent years.
The Fed said on Wednesday that the U.S. economy was finally strong enough for it to start scaling back its massive bond-buying scheme, winding down the era of easy money that saw gold rally to $1,920.30 an ounce in 2011.
Spot gold was down 1.2 percent at $1,203.85 an ounce at 1000 GMT, having earlier touched a low of $1,200.25. U.S. gold futures for February delivery were down $32.00 an ounce at $1,203.00.
That move came despite the Fed blunting its taper with a continued dovish message on interest rates – that tapering was not tightening.
“This is another sign of increasing normalisation for the world economy,” Macquarie analyst Matthew Turner said. “Gold’s insurance function is less desirable in that environment.”
On the wider markets, the dollar rallied 0.5 percent, adding to pressure on gold, which is priced in the U.S. currency and tends to move in the opposite direction to it.
European shares leapt 1.5 percent to a two-week high on Thursday, tracking gains on Wall Street and in Asia, in a broad rally after the Fed’s pronouncements. .EU
German Bunds held steady however after the Fed offset a decision to reduce its bond-buying programme by promising to keep interest rates low for longer than many investors had expected.
Investors snapped up gold after the Fed’s stimulus programme was first announced, as the scheme kept interest rates at record lows, cutting the opportunity cost of holding non-yielding bullion, while boosting its appeal as an inflation hedge.
Expectations that the programme would be unwound have knocked gold more than 25 percent lower this year, its biggest price drop in more than 30 years, with its confirmation yesterday pushing prices back towards June’s three-year low at $1,180.71.
PHYSICAL GOLD FUNDS SOLD
“What happens in the next few days could also determine to some extent how the gold price performs in the longer term,” Commerzbank said in a note.
“If the gold price should succeed in forming a stable and long-term bottom at above $1,220 per troy ounce, investor interest is likely to pick up again – after all, the considerable uncertainty over QE3 is gone, meaning that the spectre of ‘tapering’ has lost its ability to scare the gold market. On the other hand, if the gold price were to fall below $1,200, this could provoke a renewed wave of selling.”
Investors are continuing to sell out of gold-backed exchange-traded funds, which have seen outflows of some 800 tonnes this year. The largest gold ETF, SPDR Gold Shares, said its holdings fell another 4.2 tonnes on Wednesday.
Among other precious metals, silver was down 2.2 percent at $19.29 an ounce, while spot platinum was down 0.5 percent at $1,324.25 an ounce.
Only palladium bucked the trend to hold steady at $695.25 an ounce, after five straight days of losses.
The new head of Russian precious metals repository Gokhran said on Thursday the body may consider buying palladium on the market to add to its stocks.
“The government should have some amount of it (palladium) in its stocks,” Andrey Yurin said after a briefing in Moscow. He Yurin declined to comment on the current level of Gokhran’s stocks.
Sales of Russian state palladium stocks have been a major factor balancing the market in the last decade, but speculation has been rife in recent years that the inventories may be depleted.
- Gold is little changed after Fed trims stimulus (bostonherald.com)
- Gold is little changed after Fed trims stimulus (kansascity.com)
- Gold is little changed after Fed trims stimulus (nzherald.co.nz)