Gold drops 1 percent on Fed stimulus uncertainty

By Frank Tang

NEW YORK (BestGrowthStock) – Gold fell more than 1 percent on Wednesday as the dollar rose on heightened investor concern that the Federal Reserve could buy much less government debt than first thought to stimulate economic growth.

Silver and platinum group metals dropped with other commodities, as the dollar index (Read more about the global trade. ) turned higher for the year to date on worries the greenback had sunk too far based on overly optimistic expectations on the extent of any Fed easing.

“The expectation of a more gradualist approach on quantitative easing by the Fed has led to this pullback,” said James Steel, chief commodity analyst at HSBC.

Technical selling triggered price weakness after the metal broke below its Tuesday lows around $1,325 an ounce, but bullion found support at $1,319 from a rising trendline dating to late July, analysts said.

The Fed will likely next week unveil a program of purchases worth a few hundred billion dollars over several months, the Wall Street Journal said. Investors’ base-case scenario was for an initial commitment to buy at least $500 billion.

Spot gold hit a low of $1,318.74 and traded down 1.1 percent at $1,323.65 an ounce at 3:16 p.m. EDT. U.S. gold futures for December delivery settled down $16, or 1.2 percent, at $1,322.60 an ounce.

All eyes will turn to U.S. growth data at the end of this week and the hotly awaited policy meeting of the Federal Open Market Committee the following week, at which the prospect of monetary easing is set to be discussed.

“The greenback is holding strong, and there is little other news (for gold),” said Andrey Kryuchenkov, analyst at VTB Capital.

U.S. GDP data on Friday will be key for the dollar and consequently for gold, he said, “but it is really down to the

FOMC”.

The dollar hit a one-week high against the euro and a two-week peak against the yen due to uncertainty about the U.S. central bank’s plans. It extended gains after data showed U.S. new home sales rose more than expected in September.

Chart support could be found at $1,319, around spot gold’s three-month rising trendline, said Rick Bensignor, chief market analyst at Execution Noble. Prices are further supported around $1,313-14, at the bottom of the Bollinger Band, he said.

Gold set a record $1,387.10 an ounce earlier in October as expectations that the Fed would pursue a second round of quantitative easing pressured the dollar, but prices have slipped as investors worry the impact of such a policy shift has been too heavily priced into currencies and gold.

PRICE DECLINE SPURS PHYSICAL BUYING

In India, bullion traders snapped up bargains to meet festival demand as Dhanteras, one of the biggest gold-buying occasions of the year, approached in November. India’s gold import forecast also rose 15 percent for this month.

Earlier, bullion received a boost after a newspaper run by China’s Ministry of Commerce said the country should significantly boost state gold reserves to a level equal to that held by the United States, citing a local researcher.

“While the implications of potential QE and its size have monopolized market attention, the China report reminds us that the current mood amongst central banks, particularly in Asia, is to increase exposures to gold,” UBS said in a note.

Silver fell 1.3 percent to $23.54 an ounce, and platinum dropped 1.2 percent to $1,674.50 an ounce.

Analysts cited metals weakness related to concerns among U.S. regulators about market manipulation. The U.S. Commodity Futures Trading Commission said there had been attempts to influence silver prices, but gave no detail on the status of a probe into price manipulation in silver that started in 2008.

Palladium slipped 1 percent to $614.50 an ounce, having touched its highest since 2001 at $636.25. The autocatalyst metal is one of this year’s best-performing commodities.

(Additional reporting by Jan Harvey in London; Editing by Dale Hudson)

Gold drops 1 percent on Fed stimulus uncertainty