Gold Fluctuates Near Two-Week Low After Fed Reduces Bond Buying

Dec 19, 2013 1:32 am ET

Dec. 19 (Bloomberg) -- Gold swung between gains and losses after sliding to the lowest level in almost two weeks as the Federal Reserve said that it will trim its monthly bond purchases on an improved outlook for the U.S. jobs market.

Bullion for immediate delivery rose as much as 0.7 percent after slipping 0.2 percent to $1,215.93 an ounce, the lowest level since Dec. 6. The metal traded $3.40 higher at $1,221.90 at 2:24 p.m. in Singapore. Gold for February delivery declined 1.1 percent to $1,221 on the Comex.

The Fed will reduce its monthly asset purchases to $75 billion from $85 billion, “reflecting cumulative progress and an improved outlook for the job market,” Chairman Ben S. Bernanke said yesterday after officials concluded a two-day meeting. Gold slumped 27 percent this year on speculation the Fed would start to taper bond buying as economic growth picks up. About 34 percent of economists surveyed by Bloomberg Dec. 6 predicted that the Fed would start paring stimulus this month.

“The taper was generally priced in and it was the gentlest taper that they could expect,” said Steven Dooley, head of research at Forex Capital Trading Pty in Melbourne. “That’s caused a very muted reaction in the gold market.”

The Fed’s purchases will be divided between $40 billion in Treasuries and $35 billion in mortgage bonds starting in January, according to Bernanke. Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system.

Short Positions

Gold may be “susceptible to some near-term price correction should a short-covering rally occur,” James Steel, an analyst at HSBC Securities (USA) Inc. in New York, wrote in a note. Speculative short positions remain at historically high levels, he said, referring to bets on losses.

Holdings in the SPDR Gold Trust, the biggest bullion-backed exchange-traded product, declined 0.5 percent to 812.62 metric tons yesterday, the lowest level since January 2009, according to data on the fund’s website.

Silver for immediate delivery lost as much as 1.4 percent to $19.4538 an ounce and traded at $19.5814. Platinum rose 0.4 percent to $1,340.87 an ounce, rebounding from $1,333.06, the lowest since July 8. Palladium was little changed at $698.43 an ounce after touching $696.45, the lowest since Oct. 7.

--Editors: Jake Lloyd-Smith, James Poole