By Claudia Assis and Barbara Kollmeyer, MarketWatch
SAN FRANCISCO (MarketWatch) — Gold futures tumbled sharply on Thursday as the dollar rallied in the wake of the Federal Reserve’s bond-swap program and pessimistic economic data from China further damaged sentiment.
Gold for December delivery GC1Z -3.63% was off $74.20, or 4.1%, to $1,734.10 an ounce on the Comex division of the New York Mercantile Exchange, near session lows. It had traded as low as $1,731.20 an ounce earlier.
“You’ve got liquidation, people are going into cash and Treasurys,” said Matt Zeman, head trader and strategist at Kingsview Financial in Chicago. “Fear is dictating the gold market.”
A preliminary Chinese manufacturing survey showed growth moderating. With China a major consumer of natural resources, metals prices tend to be sensitive to any signs of a slowdown. Read more on the weak economic picture pained by China’s latest manufacturing data.
Closer to home, investors were spooked by Fed language in Wednesday’s policy statement following the conclusion of the Federal Open Market Committee meeting. Some also expressed worries the U.S. central bank’s swap program will do little to help the economy.
The Fed has decided to sell shorter-term Treasurys totaling $400 billion and purchase long-term Treasurys, in a bid to keep interest rates low.
The moves, said the Fed, were made against a backdrop of “significant downside risks to the economic outlook, including strains in global financial markets.” Read Fed decides on $400 billion bond swap
Low interest rates are beneficial to gold in the long run because they keep the opportunity cost of holding gold low, but the heavy selling affecting other assets such as stocks and oil made investors overlook that, at least for now.
U.S. stocks opened sharply lower on the heels of selloffs in Asian and European stocks.
With other assets also stumbling, some metals investors and large funds may have had to liquidate metals positions to cover their other investments.
“The Fed disappointed yesterday ... and a lot of people are forced to liquidate and going into cash,” Zeman said.
Adding pressure to gold, the dollar rallied,
The dollar index DXY +1.18% , which measures the U.S. currency against a trade-weighted basket of six other currencies, rose to 78.549, up from 77.089 late Wednesday. See Currencies for more on the higher dollar.
Analysts at FXPro said the market had been expecting from the Fed a third round of quantitative easing or a strong indication that it was being considered. The dollar’s gains should be viewed in the context of “general risk aversion plays,” they said in a note.
Also Thursday, the December copper contract HG1Z -7.96% fell 30 cents, or 8%, at $3.46 a pound.
Platinum and palladium prices came under pressure as well, along with silver. December silver SI1Z -8.99% dropped $3.66, or 9.1%, to $36.81 an ounce.
October platinum PL1V -4.26% skidded $82.10, or 4.6%, to $1,706.10 an ounce. Palladium for December delivery PA1Z -6.99% tumbled $53.20, or 7.5%, to $659.65 an ounce.
“Given their industrial nature, these precious metals are getting caught up in the downward pull of cyclical commodities,” Commerzbank analysts wrote in a note. “As long as the environment does not brighten, the downtrend should continue.”
