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Gold drops as Fed tapers monthly bond purchases

Posted
3/19/2014 3:20:00 PM
By: Investing.com
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Investing.com - Gold prices dropped on Wednesday in a knee-jerk selloff after the Federal Reserve announced it was trimming its monthly bond-buying program to $55 billion from $65 billion.

Fed bond purchases spur recovery by suppressing interest rates, weakening the dollar in the process while making gold an attractive hedge.

On the Comex division of the New York Mercantile Exchange, gold futures for April delivery traded at $1,332.20 a troy ounce during U.S. trading, down 1.97%, up from a session low of $1,3330.90 and off a high of $1,360.10.

The April contract settled down 1.01% at $1,359.00 on Tuesday.

Futures were likely to find support at $1,328.20 a troy ounce, the low from March 10, and resistance at $1,393.80, the high from Sept. 8.

The Fed earlier said it was leaving interest rates unchanged and reduced the amount of bonds it buys in the open market each month to $55 billion from $65 billion, both moves in line with expectations.

The news sent gold falling, as the Fed's asset-purchasing program, which kicked off in 2012 at $85 billion a month, has supported the yellow metal by weakening the dollar.

Elsewhere, the Fed omitted previous language calling for rate hikes if the unemployment rate approaches a 6.5% threshold, a policy tool known as forward guidance.

Even though the economy is improving, a highly accommodative monetary policy stance remains appropriate, the U.S. central bank said.

Still, gold remained lower on sentiments that even though interest rates may remain low for time to come, stimulus tools such as bond purchases are on their way out.

Meanwhile, silver for May delivery was down 1.24% at US$20.603 a troy ounce, while copper futures for May delivery were up 0.99% at US$2.981 a pound.

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