Gold slides over week as Fed takes step towards QE end
New York (Dec 21) Gold futures plunged over the week, after the US Federal Reserve (Fed) eventually took its first step away from the 'cheap money era' that has helped boost metal prices to record highs in recent years. A stronger greenback, reducing the purchasing power of non-dollar buyers and tapering, translated into an economic positive, dissolving fears of further crisis and reducing the need for a safe-haven currency.
Closing at $1,229.10 an ounce on New York's Comex on Friday December 6, the contract slid 2.18% to $1,202.30 an ounce over the week, erasing $26.80 an ounce.
The futures reached their weekly high of $1,251.89 an ounce on Monday and a weekly and three-year low of $1,187.15 on Thursday, falling throughout the week. The metal booked a daily gain only on Monday (0.52% higher), while the rest of the week saw only red figures.
Gold dropped below the $1,200 threshold for the first time since June during the week, with the Fed's 'Dec-tapering' being the major driver behind the slide.
'Dec-tapering' in focus
Closing the two-day Federal Open Market Committee (FOMC) meeting, the Fed announced on Wednesday it would taper its aggressive bond-buying program to $75 billion a month (trimming purchases of mortgage-backed securities to $35 billion from $40 billion and treasuries to $40 billion from $45 billion) beginning in January.
The central bank made no change to its main policy tool, the target for the federal funds rate, which remained at its lower bound of 0% to 0.25% where it has been since the height of the Great Recession in 2008. The rate will stay this low at least until the unemployment rate falls to 6.5% and the inflation rate remains below 2.5%, the committee said, making no change to the so-called forward guidance.
"The Fed’s move has been driven by improved US data - including jobs, gross domestic product growth, spending, investment - and political progress - the Senate passed the bipartisan budget - and balanced by a reinforcement of forward guidance that interest rates will stay very low for a considerable time after quantitative easing ends and until unemployment falls below 6.5%," Mike van Dulken, Head of Research at Accendo Markets, commented on the Wednesday's decision.
"The dovish boost to forward guidance has served to reassure markets - as the Fed will have hoped - that stimulus-tapering does not equate to true policy-tightening, with emphasis that sub-target inflation remains a concern, that future decisions will remain data-dependent and that it can adjust to changing conditions," he added.
