Gold Extends Drop Below $1,300 Before Conclusion of Fed
New York (Apr 30) Gold retreated for a third day in New York, trimming a monthly increase, on speculation the U.S. Federal Reserve will further reduce stimulus at a policy meeting that concludes today. Silver headed for a second monthly loss.
Gold tumbled 28 percent in 2013 to end a 12-year winning streak on expectations that the Fed would scale back stimulus as the world’s largest economy recovers. The central bank will probably cut its monthly asset purchases by another $10 billion to $45 billion, a Bloomberg News survey shows, after announcing reductions at each of the past three meetings.
“While U.S. economic data continues to be mixed, there is little doubt that the Fed will press on with reducing stimulus, and that’s contributing to some negative sentiment around gold,” said Zhu Runyu, an analyst at CITICS Futures Co., a unit of China’s biggest listed brokerage. “We expect prices to stay below $1,300 as physical demand in Asia remains muted due to holidays.”
Gold for June delivery dropped 0.5 percent to $1,290.10 an ounce at 7:17 a.m. on the Comex in New York. The precious metal is up 0.5 percent this month after losing 2.9 percent in March. Futures trading volumes were 32 percent lower than the average for the past 100 days for this time of day, according to data compiled by Bloomberg. In London, gold for immediate delivery fell 0.4 percent to $1,290.16 an ounce, according to Bloomberg generic pricing.
Gold has rallied 7.3 percent this year, in part as tension in Ukraine spurred haven demand. Russian President Vladimir Putin warned that further economic sanctions over Ukraine may lead Russia to reconsider participation by U.S. and European Union companies in energy and other industries.
Economic Prospects
Improving prospects for the U.S. economy, higher Treasury yields, reduced Fed stimulus and potential for a strengthening dollar may create “substantial headwind for gold prices,” ABN Amro said in a quarterly outlook report today. The bank expects gold to average $1,235 an ounce this year, with declines extending to $925 an ounce in 2015.
Gold jumped 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system and cut interest rates to a record in a bid to boost the economy.
Assets in the SPDR Gold Trust, the largest bullion-backed exchange-traded product, were unchanged yesterday for a sixth day at a 12-week low of 792.14 metric tons. Markets across Asia including those in China and India, the world’s largest consumers, are closed for the Labor Day holiday tomorrow.
