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Gold ends higher as Fed uncertainty curbs enthusiasm

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Gold settled nearly 1 percent higher on Friday, helped by some buying after a sharp plunge in the previous session, but remained vulnerable to downside pressure as the market parsed U.S. economic headlines ahead of a central bank meeting next week.

Uncertainty over the timing of a reduction in U.S. monetary stimulus has unnerved bullion investors in the past few months. Increased central bank liquidity had supported gold by keeping interest rates low and stoking inflation fears.

Spot gold climbed 1.2 percent to a session high of $1,257.20 and was last up 0.9 percent to $1,235 an ounce. U.S. gold futures for February delivery settled 0.8 percent higher at $1,234.60 an ounce.

Stronger-than-expected U.S. retail numbers on Thursday, adding to last week's forecast-beating jobs report, strengthened speculation the Federal Reserve could start winding down its bond purchases at its Dec. 17-18 meeting, although the market consensus is still for March.

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Adding to the rosier economic picture was news that U.S. lawmakers had struck a tentative budget deal that would avoid a government shutdown in January. The slew of upbeat economic data sent gold tumbling 2.2 percent on Thursday, its biggest fall in 10 days.

Gold is headed for its first annual decline in 13 years as investors, encouraged by a recovering global economy, pull money from gold and channel it into riskier assets such as equities.

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