Gold futures fell more than 1% on Thursday despite Feds expected decision to keep its bond purchasing pace unchanged as policy makers noted there are signs of underlying strength in the economy, suggesting tapering is still on the table in the upcoming months. Investors liquidating long positions after the recent rally further pressured prices. Silver, platinum and palladium fell as well.
On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December traded at $1 334.20 per troy ounce at 9:26 GMT, down 1.12% on the day. Prices fell to a session low of $1 330.20, the weakest level since October 23, while days high stood at $1 344.90 an ounce. The precious metal slipped 0.4% on Wednesday and extended its weekly decline to over 1.2% on Thursday.
Gold declined despite policy makers decision to refrain from trimming Feds bond purchases as market players closed their long positions after FOMCs after-meeting statement introduced nothing new that would keep prices rising. Fed officials seemed less optimistic about economic growth on Wednesday, and especially worried about the recovery of the housing and labor markets, pledging to maintain the current $85 billion per month bond purchasing pace until “the outlook for the labor market has improved substantially.”
However, policy makers noted there were signs of “underlying strength” in the economy and kept a tone which left the 16-day government shutdown in October and the possibility for a U.S. debt default on the sidelines, shifting focus to upcoming key data points. According to a Bloomberg survey of 40 analysts conducted on October 17-18, the Fed will begin scaling back its bond purchases in March. The precious metal has been tracking shifting expectations of Feds tapering timetable throughout the year and has lost 20% so far.
Victor Thianpiriya, an analyst at ANZ, said for CNBC: “With this event risk now behind us, the market will go back into data-watch mode. For gold, the intraday moves will continue to be driven by gyrations in the U.S. dollar.”
The U.S. dollar index, which measures the greenbacks performance against a basket of six major trading partners, rose for a fifth day on Thursday and traded at 79.88, up 0.13% on the day. The December contract varied in a days range between 79.97 and 79.74. The U.S. currency gauge added 0.1% on Wednesday, a fourth consecutive daily gain, and extended its weekly advance to nearly 0.8% on Thursday. Strengthening of the U.S. dollar makes dollar-denominated commodities more expensive for foreign currency holders and limits their appeal as an alternative investment.
Market sentiment also remained dampened after the recent price rally curbed physical demand for the metal, leaving end-users waiting for a drop to more reasonable price levels. Soft physical demand in China kept the precious metal during the 16-day U.S. government shutdown at lower prices than before the deadlock began.
“We expect the slowing of physical demand and the decline in Shanghai premiums will mean gold prices will have to fall further before sparking any strong end-user demand,” Thianpiriya said.
Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained unchanged for a fourth day at 872.02 tons on Wednesday, near last weeks 4-1/2 year low levels, data on the web site showed.
Elsewhere on the precious metals market, silver futures for settlement in December plunged 2.82% to $22.335 per troy ounce by 9:27 GMT. Prices fell to a session low of $22.190, the weakest level since October 22, while days high stood at $22.760 an ounce. Platinum for delivery in January traded at $1 461.00 an ounce and held in days range between $1 474.30 and $1 457.85 per troy ounce. Palladium December futures declined by 1.03% and traded at $741.80 per troy ounce at 9:30 GMT. The metal shifted between session high and low of $746.80 and $741.30 an ounce respectively.