Gold prices decline, FOMC-inspired rush runs out of steam
LONDON (Sept 20) Gold slipped on Friday morning, with Wednesday’s post-Fed announcement rally running its course and the market moving into consolidation mode ahead of the weekend.
Spot gold was last at $1,352.45/1,353.20 per ounce, down $15.10 or 1.1 percent on the Thursday’s close.
The release of better-than-expected US economic data on Thursday also weighed on gold. Initial jobless claims for the week ending September 14 increased 15,000 to 309,000 but were well below the expected 330,000 and the Philadelphia Fed business outlook index rose to 22.3 in September, much better than the forecast of 10.3 and August’s reading of 9.3.
Continued dollar softness offered support, however - the US currency was unchanged against the euro at 1.3530 but had hit a seven-month low of 1.3568 on Thursday.
“Rather than rely on physical demand, the key to gold’s direction may be the US dollar and the behaviour of emerging market assets, both of which are lending support to gold,” James Steel at HSBC said in a note.
“The Fed tapering decision is no longer a surprise and we wonder how much more traction the gold market can get from the Fed decision,” he added. Also without robust physical demand, gold’s upside may be limited.”
On Wednesday, the US central bank surprised markets by declining to start the unwinding of its monetary easing measures -a cut of $10 billion from its monthly rate of asset purchases of $85 billion had been widely expected. The news sent the shorts running for cover and gold spiked to $1,375.
“Although it is too early to judge, it seems that Wednesday’s spike was a one-off, likely caused by a massive short covering rally that culminated in a mad scramble towards the exits. This notion seems to be confirmed by the fact that open interest fell Wednesday, an indication that shorts were indeed covering,” INTL FCStone analyst Edward Meir said.
“Given falling inflation, we think investors are still not properly incentivized to buy more gold. As a result, we think the upside potential in the coming days is limited,” added Credit Suisse.
With China and Hong Kong absent for holidays today, demand has been thin and prices are expected to range tightly
“With no figures out today and a big range behind us, this could well be a quiet day. It's the end of the week - next week sees the end of the quarter and I suspect heroics will be few and far between,” David Govett at Marex said.
In the other precious metals, silver at $22.53/22.59 per ounce was down sharply on Thursday’s close of $23.12, while platinum fell $14 to $1,448/1,453 and palladium at $720/726 was down $15.
