Gold edges lower as dollar drifts up on Fed tapering expectations

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Investing.com - Gold prices edged lower in quiet trading as the dollar inched up on expectations for the Federal Reserve to make fresh cuts to its USD75 billion monthly bond-buying stimulus program.

On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,239.80 a troy ounce during U.S. trading, down 0.16%, up from a session low of USD1,237.90 and off a high of 1,243.40.

The February contract settled down 0.81% at USD1,241.80 on Tuesday.


Futures were likely to find support at USD1,235.40 a troy ounce, Tuesday's low, and resistance at USD1,261.30, the high from Jan. 19.

The dollar continued to see support from the International Monetary Fund's decision this week to hike its global economic growth forecast to 3.7% from 2014 from an October forecast for 3.6% growth.

The news fueled expectations for central banks to wind down stimulus programs such as bond purchases going forward, the Federal Reserve especially, as the multilateral lending institution predicted the U.S. economy to grow 2.8% this year, up from an October forecast of 2.6%.

Many market participants held firm on their expectations for the Fed to trim its quantitative easing program to USD65 billion from the current USD75 billion at its next policy meeting that wraps up on Jan. 29.

Fed bond purchases aim to prop up the economy by suppressing long-term interest rates, thus weakening the dollar as a side effect as investors flock to asset classes like stocks, with gold serving as an inflation hedge of choice.

Since the 2008 financial crisis, the Federal Reserve has rolled out three rounds of quantitative easing to prop up the economy.

The current program began in September of 2012 and saw the Fed initially buy USD85 billion in Treasury holdings and mortgage debt a month from financial institutions.

Meanwhile, silver for March delivery was down 0.04% and trading at USD19.862 a troy ounce, while copper futures for March delivery were down 0.69% and trading at USD3.328 a pound.

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This article appears in: Investing , Forex and Currencies

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