Gold dives as Fed meeting approaches
London (Dec 12) Gold futures added to previous losses on Thursday, dragged down by speculation that the Federal Reserve (Fed) might taper its monthly asset purchases next week.
Gold futures declined 1.04%, trading at $1,243.90 an ounce as of 9:22am GMT, still up more than 1% this week with a weekly high of $1,267.50 hit on Tuesday, the highest price since November 20. Analysts warn that such gains are unlikely to be sustained, especially when Fed tapering speculation attracts more anticipation.
Silver futures, meanwhile, were down 1.21% at $20.110 an ounce as of the same time.
Holdings in SPDR gold trust fell more than 2 tonnes on Wednesday to 833.60 tonnes.
With gold prices still being directly linked to developments on the US labor market, a fresh batch of data on jobless claims later today in the world's largest economy could shed more light on bullion's valuation after the Fed meeting on December 17-18.
Fed meeting
Tuesday's agreement on US budget deal has brought the Fed closer to tapering its monthly bond-buying program, according to some analysts, while the majority of them still see March next year as the earliest possible start for such a move. The Fed's next meeting is scheduled for December 17-18.
House Speaker John Boehner stated that "while modest in scale, this agreement represents a positive step forward by replacing one-time spending cuts with permanent reforms to mandatory spending programs that will produce real, lasting savings." However the deal doesn't solve the necessity to again raise the US borrowing authority next year.
However, Jane Foley, a senior currency strategist at Rabobank thinks the "fact that the US T-note yields have dropped back from Friday's post payrolls levels suggest that the market may not be so worried about a December tapering announcement from the Fed after all."
But Foley added that the bipartisan budget deal may make Federal Open Market Committee members "feel a little more comfortable when they finally decide to reduce the amount stimulus to the US economy; assuming that the deal is passed into law."
Allan von Mehren, chief analyst at Danske Bank, supports the idea of December tapering, saying that the budget deal "may add another argument for starting to taper already in December. Fiscal uncertainty has been one of the factors holding the Fed back - something that was proven justified with the fiscal debacle in October."
"We continue to look for the Fed to start tapering at their meeting next week," he concluded.
Should any possible signal point to sooner tapering, the US dollar would be boosted and gold stifled. However, should Fed officials delay tapering once again, it would weaken the dollar and encourage investors to switch again to the safe-haven of gold.
Whatever the signal, precious metal prices are likely to show volatility in the coming days.
