Gold falls as Fed's upbeat outlook boosts dollar
New York ( Jan 29) Gold prices dropped for a fourth session in five on Thursday, losing more than 1 percent as the dollar firmed after the Federal Reserve signalled it was still on track to lift U.S. interest rates this year.
In Wednesday's policy statement, the Fed said the U.S. economy was expanding "at a solid pace", but it reiterated it would be patient in deciding when to increase benchmark borrowing costs.
Gold had been boosted by increased central bank liquidity and low interest rates since the 2008 credit crisis. The prospect of higher U.S. rates could encourage investors to pull back from the metal, a non-interest-bearing asset.
Spot gold fell to a session low of $1,265.20 an ounce and was down 1.2 percent at $1,269.10 by 1234 GMT. Gold hit a five-month high of $1,306.20 on Jan. 22, before retreating on stronger risk appetite after the European Central Bank announced new liquidity measures.
U.S. gold for February delivery eased 1.4 percent to $1,268.60 an ounce.
"There was a chance that the ECB and the Fed would restore order and that's basically what happened, that the ECB QE (quantitative easing) was just about the right pitch and then the Fed last night was certainly hawkish relative to expectations," Macquarie analyst Matthew Turner said.
"It's possible we can see a bit more weakness with the U.S. GDP coming out Friday."
The dollar was slightly firmer against a basket of currencies and not far from an 11-year peak reached last week, while European shares edged lower.
The Fed said it would take "financial and international developments" into account when determining when to raise rates, referencing global markets for the first time since January 2013.
Analysts said that did little to alter market expectations of a mid-year rate increase.
"Overall, there is little to signal a shift from expecting the first hike to come in June," Mizuho Bank said in a note.
Investors will be watching the gross domestic product data for more clues on the strength of the economy.
Some economists say a drop in U.S. business investment spending for the fourth straight month in December suggested a risk that fourth-quarter economic growth could fall short of forecasts that mostly hover around a 3.0 percent annual pace.
Spot silver dropped 2.6 percent to $17.48 an ounce. Palladium fell 0.7 percent to $786.70 an ounce and platinum was down 1.1 percent at $1,239.75 an ounce.
Source: Reuters
