Gold fell to a three-week low on Thursday after the US Federal Reserve ended its bond-buying stimulus programme and expressed confidence in the economic recovery, dimming bullion’s safe-haven appeal.
The strength of the dollar, which hit a 3-1/2-week high against a basket of major currencies after the Fed statement, also hurt bullion.
Ending its monthly bond purchases, the Fed dropped a characterisation of US labour market slack as “significant’’ in a show of confidence in the economy’s prospects.
In a statement on Wednesday after a two-day meeting, the central bank had largely dismissed financial market volatility, a slowdown in Europe and a weak inflation outlook as factors that might undercut progress towards its unemployment and inflation goals.
“The announcement struck us as coming across more hawkish than what the market was expecting,’’ said INTL FCStone analyst Edward Meir.
Fed rate hike
Gold, often seen as an alternative investment during economic and financial uncertainty, fell on fears the vote of confidence in the recovery could prompt the Fed to raise interest rates soon.
Bullion, as a non-interest-bearing asset, could take a hit when higher rates are in place.
US GDP data
“We think the next shoe to drop will come on Thursday when US GDP numbers for the third quarter will be released. If the number comes in higher than 3 per cent, as we suspect it will, we would not rule out another round of heavy selling in gold that could see us revisit the old lows of $1,180,’’ Meir said.
Spot gold, gold futures
Spot gold fell to $1,205.35 an ounce on Thursday - its lowest since October 8 - before recovering slightly to trade down 0.4 per cent at $1,206.88 by 0631 GMT. The metal, which hit a 15-month low of $1,183.46 earlier this month, fell 1.3 per cent on Wednesday.
US gold futures fell as much as 1.6 per cent to $1,205.20.
The US Commerce Department will release the gross domestic product figures at 1230 GMT. The economy is expected to have grown at a solid 3 per cent annual rate in the third quarter.
In a reflection of investor sentiment, SPDR Gold Trust , the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.16 per cent to 742.40 tonnes on Wednesday, a six-year low. The outflows could undermine any possible rally in gold.
In the physical markets, too, buying interest fell. Premiums in top consumer China were about $1-$1.50 an ounce on Thursday, compared with about $2 on Wednesday.
“With the heightened negative sentiment, we expect to see even more scaled-up selling from the speculative community as well as producers who have been active on rallies over the last few weeks,’’ said Alex Thorndike, senior trader at MKS Group.