Gold Extends Drop From Month High on Fed Stimulus Outlook

Singapore (Jan 15)   Gold dropped for a second day from the highest level in a month as the rally reduced demand amid speculation that the U.S. Federal Reserve will continue reducing asset purchases.

Bullion for immediate delivery fell as much as 0.5 percent to $1,239 an ounce, and traded at $1,242.03 by 9:26 a.m. in Singapore. Prices yesterday climbed to $1,257, the highest since Dec. 12, before ending 0.6 percent lower as the Bloomberg U.S. Dollar Index, a gauge against 10 major peers, rose 0.4 percent. Silver retreated after advancing to a two-month high.

Assets in the SPDR Gold Trust, the biggest bullion-backed exchange-traded product, fell for the first time in four days to a five-year low of 789.56 metric tons yesterday. Last year, gold posted the largest annual decline since 1981 as Fed policy makers decided to cut monthly bond purchases to $75 billion from $85 billion. Philadelphia Fed President Charles Plosser and his Dallas counterpart Richard Fisher yesterday called for continued reduction of the central bank’s bond-buying program.

“Hawkish comments from Fed officials weigh on gold,” Howard Wen, an analyst at HSBC Securities (USA) Inc., wrote in a note. “Bullion was weighed down by better-than-expected economic data. The recent rally looks stalled and may fall if U.S. dollar rallies.”

Gold has rebounded from a six-month low of $1,182.27 on Dec. 31 on signs of strengthening demand in China, which probably overtook India as the largest user last year. Volumes for the benchmark contract on the Shanghai Gold Exchange rose to a one week high of 17,717 kilograms yesterday.