Gold futures struggled on Thursday after Federal Reserve chairwoman Janet Yellen said that the US central bank could conceivably raise interest rates faster and higher than current economic data suggests.
Gold for December delivery on the Comex division of the New York Mercantile Exchange was last down $13.40 at $1,222.50 per ounce. Trade has ranged from $1,216.60 to $1,226.20.
The US Federal Open Market Committee (FOMC) gave the market little to cheer about at the end of its monthly meeting. It largely acted in accordance with expectations, pushing the dollar higher as the end of quantitative easing nears.
“This week’s FOMC meeting did not exactly contain many surprises, but gold’s $20 knee-jerk reaction lower suggests that although policy normalisation is largely priced-in, some investors wanted to get further confirmation and better guidance on what the Fed’s plans are,” UBS’ Edel Tully said.
The Fed also indicated that rates will rise around the end of the first quarter of next year and might be steeper than thought – the projected Fed funds rate for the end of 2015 is now 1.27 percent compared with 1.20 percent previously and end-2016 forecasts are at 2.68 percent, up from 2.53 percent.
“Gold price action from here is likely going to be heavily influenced by continuous recalibration of expectations surrounding these factors. Another downside risk is the fact that although the Fed said it does not expect that asset sales will be part of its normalisation process, the door has been kept open for this possibility,” Tully added.
“This scenario, if it occurs, will be disruptive for markets in general and will be very negative for gold,” she added.
Meanwhile, the dollar was firm again against the euro, touching 1.2834 at one stage, close to the 14-month highs hit earlier this week – it was recently around 1.2875.
“Since US monetary policy is likely to tighten in the quarters ahead, overhead resistance levels are likely to be challenged. The long-term trend in the dollar will once again be a rising one but in the short term we may be close to a logical place for the dollar to run into resistance, which could cause consolidation at lower numbers,” FastMarkets analyst William Adams said.
“If the dollar does pull back to consolidate, this might well throw a lifeline to bullion prices and may well help underpin metal prices generally,” Adams added.
In equities, Germany’s DAX and France’s CAC-40 were up 0.96 percent and 0.64 percent respectively, while in Asia the Nikkei ended 1.13 percent higher and the Hang Seng closed down 0.85 percent.
Wider markets are expected to see a focus on monetary and economic developments – the afternoon data-flow includes US housing starts and building permits, initial jobless claims and the Philly Fed manufacturing index.
As for the other precious metals, Comex silver for December delivery was last down 24.4 cents at $18.490 per ounce. Trade has ranged from $18.465 to $18.570.
Platinum futures for October delivery on the Nymex were down $13.30 at $1,348.90 per ounce, while the most actively traded palladium contract was at $828.35, down $10.70.
(Editing by Mark Shaw)