Gold falls over the week after Fed
New York (N ov 2) Gold prices fell in the week to November 1, after two weeks of gains. Gold futures declined from Wednesday, after the Federal Reserve's (Fed) less dovish policy outlook boosted the US dollar to two week highs. Gold prices are inversely correlated to the greenback.
Two weeks of gains culminated in a five-week high hit on Monday, ahead of the Federal Open Market Committee (FOMC) decision, as commodity investors were expecting a more dovish tone from the Fed. The US central bank's decision hinted that policymakers were less alarmed about the state of the economy than had been anticipated after the previous policy meeting.
The Fed kept its monetary policy unchanged, with its $85 billion-a-month stimulus plan still intact.
Gold futures for December closed the week 2.76% lower at $1,315.20 on New York's Comex, compared to last Friday's close at 1,352.50.
The metal touched the week's low on Monday at $1,361.32 an ounce, its highest since September 20, while on the downside, it hit the week's low on Friday at $1,314.84 an ounce.
Meanwhile, the US dollar index, measuring the relative strength of the greenback against a basket of its six of its major counterparts, soared to the highest in almost two weeks after the FOMC decision.
FOMC meeting
The Fed met expectations as it said it would need more growth evidence before scaling back its monetary stimulus. The central bank's statement was only slightly changed, but traders interpreted the news as a sign that tapering may come sooner than expected. Previous market consensus had pointed to stimulus remaining the same until March next year.
The probability that the Fed will trim its stimulus in January increased to 45%, from 25% before Wednesday's decision, Citigroup estimated, suggesting that the 'easy money' regime, which has until now nourished global commodities, may finish soon.
"The Fed may not really believe in December, but it's more about managing expectations and preventing market complacency in the QE3 easy money policy ad infinitum (or for a good while longer at least) creating a dangerous bubble which could burst and do more damage and require more help to repair. We don't want to go their again. So sorry guys, the US data-watching remains in force," Mike van Dulken, Head of Research at Accendo Markets, commented to clients this morning.
The next FOMC meeting is scheduled for December 17-18.
Slow physical buying in China
Adding to the bearish trend on gold towards the end of the week, the usual physical buying from China and India and from 'Love Trade' - people who buy gold as gifts for loved ones during important holidays and festivals - failed to provide much support.
Especially in China, prices on the Shanghai Gold Exchange declined compared to global prices due to fears of a cash crunch.
In contrast, September has historically been gold's best month of the year, associated with strong gold demand. Taking into account 40 years of positive monthly returns, the precious metal has seen its biggest increase this month, averaging 2.3%, according to Bloomberg data.
China bought more than 100 tonnes of gold from Hong Kong for a fifth straight month in September as demand for bullion bars and jewelry stayed strong, keeping it on track to overtake India as the world's biggest gold consumer this year.
However, wedding season in India begins in October, followed by the five-day Hindu festival of lights, Diwali - India's biggest and most important holiday of the year. In December, millions of people will be gathering with loved ones to exchange gifts as they observe
