Gold retreated below the $1 300 mark on Wednesday as the U.S. dollar strengthened after a White House official said President Barack Obama will nominate Janet Yellen as Bernankes successor as Fed Chief. This fueled speculation that the central bank will maintain policy that would boost economic growth. Ongoing political impasse in the U.S. however capped losses. Investors also awaited the release of the Federal Open Market Committees September meeting protocols, due later today.
On the Comex division of the New York Mercantile Exchange, gold futures for delivery in December fell by 2.00% to $1 298.10 per at 14:21 GMT. Prices dropped to a 1-week low of $1 294.90 per ounce in the early U.S. session, while days high stood at $1 322.00. The yellow metal slipped 0.2% on Tuesday and extended its weekly decline to 1% after Wednesdays retreat.
Gold retreated on Wednesday as the dollar surged after a White House representative announced that President Obama will nominate the Fed stimulus programs key architect, Janet Yellen, as the person to replace Ben Bernanke as Fed Chief after his term expires on January 31. Obama turned to Yellen, Fed Vice Chairwoman and first female Federal Reserve Chairman, after the other leading candidate, former Treasury secretary and White House economic adviser Lawrence Summers, withdrew from consideration.
The nomination removed some of the uncertainty that rattled the markets after the central bank refrained from trimming its $85 billion per month bond purchasing program in September and spurred bets that the Fed will maintain its accommodative policy, supporting economic growth and risk appetite.
Dan Dorrow, head of research at Faros Trading LLC in Stamford, Connecticut, said for Bloomberg: “We’ve got dollar strength against the safe havens. Yellen’s nomination, which was widely expected, is still a risk-positive event.”
The dollar index, which measures the greenbacks performance against six major trading partners, rose by 0.53% to 80.50 by 14:12 GMT. The December contract rose to a session high of 80.54, the strongest level since September 27, while days low stood at 79.96. The U.S. currency gauge rose by 0.1% on Tuesday and rebounded to positive territory on weekly basis after Wednesdays advance. Strengthening of the greenback makes dollar-denominated commodities more expensive for foreign currency holders and limits their appeal as an alternative investment.
Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, commented for Bloomberg: “The dollar is the winner today. Prices are under pressure as physical demand has taken a hit.”
The metal was also expected to draw support from increased physical demand from China after markets in the Asian country reopened on Tuesday following the end of the Golden Week holiday. Buying in Shanghai however was muted.
Golds losses remained limited as lawmakers failed to break through the budget impasse, which entered a second week and extended the economys losses. According to JPMorgan analysts, every week of shutdown reduces the economic expansion in the last three months by an annualized 0.12%. IHS Inc. in Lexington, Massachusetts, said the government shutdown costed the economy $1.6 billion last week in lost output.
President Barack Obama said on Tuesday he would be willing to hold discussions over the U.S. budget, if Republicans agree to re-open the government and raise the debt ceiling. Meanwhile, Republican House Speaker John Boehner rejected the president’s stance that he’ll only talk when his terms are met and insisted on immediate negotiations.