The Fed said on Wednesday that the U.S. economy was finally strong enough for it to reduce its monthly asset purchases to $75 billion from $85 billion, “reflecting cumulative progress and an improved outlook for the job market,” Chairman Ben S. Bernanke said yesterday after officials concluded a two-day meeting.
Gold slumped 27 percent this year on speculation the Fed would start to taper bond buying as economic growth picks up. About 34 percent of economists surveyed by Bloomberg Dec. 6 predicted that the Fed would start paring stimulus this month.
“The cat is now out of the bag in terms of tapering,” said Ole Hansen, the head of commodity strategy at Saxo Bank A/S in Copenhagen. “Gold is under renewed pressure. Hedge funds are adding to existing shorts on the break below $1,210, and we are seeing long capitulation from those who had hoped that tapering would not happen so soon.”
“Nobody wants to buy gold as an investment at this point,” said Adam Klopfenstein, a senior market strategist with Chicago-based brokerage Archer Financial Services LLC. He expects gold futures to trade below $1,000 an ounce next year. “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.”
Other factors hurting gold include Senate passage of a U.S. budget deal, further diminishing the likelihood of another government shutdown like the one in October, the recently stronger tone in equities and year-end tax-related selling, said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures.
Gold was choppy after the Federal Open Market Committee outcome Wednesday afternoon, first selling off, then rallying, then sliding again. The market held up in Asian hours, but then fell again during London and early New York trade, market watchers said.
“Today’s announcement from the Fed is a welcome reflection of improved economic conditions in the U.S.,” said World Gold Council’s William Rhind. “We believe market participants will refocus on the underlying fundamentals of supply and demand, which remain positive.”
Silver for immediate delivery lost as much as 1.4 percent to $19.4538 an ounce and traded at $19.5814. Platinum rose 0.4 percent to $1,340.87 an ounce, rebounding from $1,333.06, the lowest since July 8. Palladium was little changed at $698.43 an ounce after touching $696.45, the lowest since Oct. 7.
- Gold Drops Below $1,200 for First Time Since June as Fed Tapers – Bloomberg
- Gold Falls Toward Year’s Low – WSJ
- Gold Drops After Fed Announces Taper – Fox Business
- Gold’s taper tantrum drags it to 6-month troughs – CNBC
- Gold Fluctuates Near Two-Week Low After Fed Reduces Bond Buying – Bloomberg
- Gold falls to June lows as Fed taper sinks in – Market Watch