Gold Falls After Fed Trims Bond Buying on Outlook for Job Market

Dec 18, 2013 4:28 pm ET

Dec. 18 (Bloomberg) -- Gold fell after the Federal Reserve said it will reduce monthly bond purchases, citing improvement in the U.S. labor market as it winds down the record stimulus effort.

The central bank said today it will trim purchases to $75 billion from $85 billion. Fed officials raised their assessment of the employment outlook, predicting the jobless rate will fall as low as 6.3 percent by the end of next year, compared with a September forecast of 6.4 percent to 6.8 percent. Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system.

“This is fairly bearish for gold,” Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “The Fed clearly thinks that the economy is doing alright, and certainly strong enough to be able to withstand the reduction in monetary accommodation.”

Gold for immediate delivery dropped 0.8 percent to $1,220.97 an ounce at 4:05 p.m. New York time. Bullion futures for February delivery lost 0.9 percent to $1,219.20 in electronic trading after regular hours on the Comex in New York, They settled at $1,235 at 1:35 p.m.

Prices swung after the U.S. central bank’s announcement. Fed Chairman Ben S. Bernanke said today’s decision to start paring asset purchases while lowering the threshold for unemployment is aimed at keeping “a high level of accommodation.”

Policy makers may hold interest rates near zero even if unemployment falls below the 6.5 percent rate the central bank previously cited as a likely catalyst for an increase, “especially if projected inflation continues to run below” the 2 percent goal, the Fed said in the statement.

“The initial reaction in gold may be that the surprise is not the tapering, but the wording of monetary policy that maybe tilts a little to the dovish,” Jim Wyckoff, a senior analyst at Kitco Metals Inc., a research company in Montreal, said in a telephone interview.

Gold has tumbled 27 percent this year. Prices are heading for the first annual loss since 2000 amid speculation that the Fed would start curbing its in monthly bond-buying.

--Editors: Millie Munshi, Thomas Galatola