Gold Ends at Four-Week Low Amid Fed Tapering Jitters
San Francisco (Nov 13) Gold futures fell to their lowest level in four weeks Tuesday, as traders reset their focus on the Federal Reserve and the eventual end of its easy-money policies.
The most actively traded contract, for December delivery, fell $9.90, or 0.8%, to settle at $1,271.20 a troy ounce on the Comex division of the New York Mercantile Exchange. This was the lowest settlement price since Oct. 11, when futures closed at $1,268.20.
Gold prices have been in decline for four straight days in the wake of a better-than-expected U.S. labor market reading, released last Thursday. The report renewed speculation that the Federal Reserve would curtail its stimulus efforts as soon as December now that the U.S. economy appears to be on a firmer footing.
Gold has benefited from the Federal Reserve's efforts to spur business activity by keeping interest rates low, as many investors bought the precious metal as a hedge against perceived risks like higher inflation and a weaker dollar.
However, fears that the long-running source of support would be removed pushed prices down as much as 28% to June lows of $1,211.60, levels not seen in nearly three-and-a-half years.
"Everybody's eyes are now on the next numbers coming out, because you need to string a couple of good reports together in order to justify any tapering before the end of the year," said Thomas Capalbo, a metals broker with Newedge.
The next U.S. nonfarm payrolls report is due Dec. 6, less than two weeks before the Federal Open Market Committee holds its final monetary policy setting meeting for 2013.
Investors have been reducing their bullish wagers in gold on the assumption that the upbeat economic data would force the central bank's hand, Mr. Capalbo said.
On Tuesday, as gold slipped to hover near $1,279 an ounce, the decline unleashed a wave of automatic selling orders that pushed prices to $1,261 an ounce, their lowest level since Oct. 15.
"It wasn't a dramatic breakdown, but it took us below $1,279," said Dave Meger, director of metals trading with Vision Financial Markets.
Some traders set up automatic selling orders, known as sell stops, to limit losses on bullish wagers when asset prices are falling. Sell stops spring into action when market prices fall to a certain level, and can contribute to sudden downdrafts in prices if many market participants congregate these orders around the same price level.
