MW:Gold falls over $50 as dollar gains in wake of Fed
Palladium, platinum, silver also drop sharply
By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch) — Gold futures tumbled sharply on Thursday in European trading hours as the dollar rallied in the wake of a bond-swap program announced by the Federal Reserve, though some analysts said the safe-haven attraction for the metal would likely resume.
Gold for December delivery GC1Z -2.70% slid throughout European trading hours, last down $54.30 to $1,753.80 an ounce in electronic trading, after settling at $1,808.10 in New York.
“We regard the current price weakness as temporary and not lasting, as the Fed has decided to swap shorter-term Treasurys totaling $400 billion into long-term Treasurys and this should also push down long-term interest rates,” said analysts at Commerzbank, in a note to investors.
The moves, said the Fed, were made in what it viewed as “significant downside risks to the economic outlook, including strains in global financial markets.” Read Fed decides on $400 billion bond swap
Commerzbank analysts said investors should expect very low or even negative real interest rates for both long and short maturities for some time, “which will keep the opportunity costs for holding gold extremely low.
“Market players are now likely to turn their attention back to the debt crisis in the euro zone. In the current climate, gold should remain in strong demand as a safe haven,” they said.
Pressuring gold, the dollar rallied, while Asian and European stocks sold off sharply. Analysts at FXPro said the market had been expecting a third round of quantitative easing or a strong indication that it was being considered. “There were neither, which is why we’ve seen the dollar rise (on general risk aversion plays) and Asian stocks sell off,” said analysts in a note.
The dollar index DXY +0.89% , which measures the U.S. currency against a trade-weighted basket of six other currencies, rose to 78.371, up from 77.089 in late North American trading on Wednesday. Dollar strength sent the Australian dollar below parity with the greenback for the first time since March. See Currencies
The December copper contract HG1Z -5.87% fell 22 cents, or 6%, at $3.54 a pound.
Platinum and palladium prices also came under pressure, along with silver.
“Given their industrial nature, these precious metals are getting caught up in the downward pull of cyclical commodities,” said Commerzbank analysts. “As long as the environment does not brighten, the downtrend should continue.”
In addition to Fed gloom, HSBC’s preliminary China manufacturing survey slid to a two-month low in September, indicating a moderating growth picture. The country is a big user of natural resources and metals prices tend to be sensitive to any signs of a slowdown in the economy. The data led to a sharp sell-off for equities in Hong Kong on Thursday. Read China manufacturing data paint weak picture
October platinum PL1V -2.96% slid $62.20, or 3.5%, to $1,726 an ounce. Palladium for December delivery PA1Z -6.11% tumbled $52.60, or 7.3%, to $660.25 an ounce.
December silver SI1Z -5.87% dropped $2.51, or 6.2%, to $38.01 an ounce.
Barbara Kollmeyer is an editor for MarketWatch in Madrid.
