Gold Prices Drop After Fed Reduces Monthly Bond-Buying Program

Jul 30, 2014 2:21 pm ET

July 30 (Bloomberg) -- Gold fell for a third day after the Federal Reserve announced a sixth straight $10 billion cut to its bond-purchases program amid signs that the U.S. economic recovery is gaining traction.

The Federal Open Market Committee tapered monthly bond buying to $25 billion, staying on pace to end the purchase program in October. Gross domestic product in the second quarter rose at a 4 percent annualized rate, compared with a revised 2.1 percent drop in the first quarter, government data showed earlier today.

Through yesterday, gold climbed 8.1 percent this year as violence in the Middle East and Ukraine boosted demand for the metal as a haven. Faster economic growth gives the Fed more leeway to raise interest rates after tapering monetary stimulus.

“With the economy doing well, money will move to risk-on assets,” George Gero, a vice president and precious-metals strategist at RBC Capital Markets in New York, said in a telephone interview. “The trimming of the stimulus is priced in so the market is not reacting a lot, but the sentiment remains negative.”

Gold for immediate delivery fell 0.3 percent to $1,294.91 an ounce at 2:07 p.m. New York time. Prices fell 0.6 percent in the two prior sessions.

On the Comex in New York, gold futures for December delivery settled 0.3 percent lower at $1,296.90.

The metal tumbled 28 percent in 2013, ending a 12-year rally, on expectations that the Fed would scale back stimulus as the economy recovers.

The central bank has kept its target for overnight bank lending in a range of zero to 0.25 percent since December 2008 to help spur a recovery.

The GDP report “will weigh heavily on gold, and people think that the Fed may look at raising interest rates sooner rather than later,” Chris Gaffney, a senior market strategist at EverBank Wealth Management in St. Louis, said in a phone interview. “The sentiment is very negative.”