Gold near six-week low ahead of FOMC outcome

Gold fell below the $1 300 mark in early European trading and touched a six-week low, after which consolidation followed around the key level amid broad market expectations that the Fed will begin trimming its monetary stimulus after the end of FOMcs meeting later today. Silver and palladium fell, while platinum slightly advanced.

On the Comex division of the New York Mercantile Exchange, gold December futures fell by 0.25% to $1 306.10 per troy ounce at 7:47 GMT. Prices held in range between days high of $1 310.60 and low at $1 291.70, the weakest level since August 7. The precious metal fell by 0.50% on Tuesday and extended its weekly decline to over 1.5% after plunging almost 5% in the preceding two five-day periods.

Gold has declined nearly 23% so far this year and is set for its first annual decline in 13 years as investors lost faith in the metal as a haven for wealth preservation and as market players expected the Federal Reserve to begin decelerating its monetary easing program by the end of the year. The metal is mainly used as a hedge against inflation, which tends to arise when central banks ease money supply. Therefore, an exit from Fed’s stimulus program would deliver a heavy blow to gold’s demand prospects.

The precious metal was pressured yesterday amid mixed U.S. inflation data. The U.S. Labor Department reported that consumer prices rose by 0.1% in August, underperforming both projections and the preceding month’s 0.2% increase. Year-on-year, the Consumer Price Index rose by 1.5%, mismatching expectations for a 1.6% advance after surging 2.0% in the preceding month.

The so called Core CPI, which strips out the more volatile energy and food expenditures, met analysts’ expectations and gained 0.1%, which however marked a slowdown from July’s 0.2% increase. Year-on-year, core consumer inflation also met projections and advanced by 1.8%, outperforming the preceding period’s 1.7% gain. The steady rise on annual basis eased previous concern among Fed officials over underlying risks of disinflation that could occur if the central bank’s monetary stimulus gets pulled out too soon. Fed’s official inflation target stands at 2% and Chairman Ben Bernanke said that low inflation is temporary and expects it to pick momentum as the economy strengthens further.

Market players remained cautious ahead of the outcome of FOMCs meeting that ends later today and Fed Chief Ben Bernankes statement, which will follow. Investors broadly expect a $10 billion reduction of bond purchases to be announced. According to a Bloomberg survey conducted on September 6, the central bank will reduce its monthly purchases of Treasuries to $35 billion from $45 billion and keep mortgage-bond buying unchanged at $40 billion. Credit Suisse analysts expected a $20 billion reduction of the program.

Daniel Morgan, a Sydney-based commodity analyst at UBS AG, said for Bloomberg: “The tapering really removes the upside case for gold. I don’t see any big reasons to be bullish on gold in the short term.”

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, remained unchanged for a second day at 911.12 tons, data on the web site showed.

Elsewhere on the precious metals market, silver and palladium fell, while platinum advanced. Silver December futures fell by 0.11% to 21.760 per ounce at 7:43 GMT. Prices ranged between days high of $21.805 and low at $21.373, the weakest level since August 12. Platinum for delivery in October rose by 0.42% to $1 428.40 an ounce. The metal held in range between days high at $1 429.55 and low of $1 411.80 per ounce, the lowest since July 18. Palladium December futures traded at $704.40 an ounce, down 0.36% on the day. Prices varied in a days range between $707.00 and $695.70 per troy ounce.