IN: Gold Spot Price: Climbing on Prospects of Modest QE Tapering
iNVEZZ.com, Tuesday, September 17: Gold price edged up today as the US dollar was weighed on by expectations that the US Federal Reserve would announce a modest QE reduction at its two-day FOMC meeting starting today. The precious metal regained some positions after having declined in the previous session to $1,303.85 an ounce.
Modest reduction
After the lows reached in yesterday’s trading session gold price edged higher today and could be found at $1,310.42 an ounce as of 15:16 BST. Earlier the price had rallied to about $1,320. Lifting the precious metal was the prospect that the US Federal Reserve would scale back its stimulus programme, through which it purchases $85 billion in treasury and prime mortgage debt on a monthly basis.
On the prospect of modest tapering the US dollar declined against a basket of currencies, while US Treasury yields and European shares also were down.
"We are seeing that the expectations for tapering to continue to be lowered and at the moment we are down in the $5-to-$10 billion bracket, which is lending some support to gold and pressuring the dollar and bond yields," said Ole Hansen, senior manager at Saxo Bank, as quoted by Reuters.
"There is no doubt that the positioning and trading activity in general is going to be light ahead of tomorrow because this is the most awaited announcement for a long time."
Hansen added that a greater-than-expected stimulus cut could trigger a decline in gold price to under the $1,300 mark, currently perceived as a strong short-term support.
The prospect of QE tapering has been the central topic on the gold markets in recent months, and the main reason for the metal’s steep decline this year. Gold has lost about 21 percent in 2013 on concerns that the Fed will scale back its stimulus programme, thus strengthening the dollar and eventually prompting an increase in interest rates.
Price outlook
Reuters quoted Goldman Sachs as saying that it expected the precious metal to record fresh lows in 2014, triggered by economic data confirming a reacceleration in growth for the US economy and warranting “a less accommodative monetary policy stance". In near term, the bank expects that a ‘dovish’ reduction of stimulus and gold's recent decline will limit the downside to the gold price.
