Futures & Commodities

Gold ends below $1,200; lowest settle in nearly 4 weeks

Reuters with CNBC
Source: World Gold Council

Gold settled at its lowest level in nearly 4 weeks on Thursday after the Federal Reserve ended its bond-buying stimulus program with unexpectedly upbeat comments about the economy.

U.S. December gold futures ended $26.30, or 2.2 percent, lower at $1,198.60 an ounce, its lowest close since October 3.

Meanwhile, spot gold was down 1 percent at $1,199 an ounce and silver tumbled to its lowest price since March 2010 at $16.45.

The Fed statement on Wednesday, coupled with unexpectedly strong third-quarter U.S. economic growth data, sent the dollar to its highest since Oct. 6, while U.S. interest rate futures shifted to show better-than-even chances of a rate rise next September. Previously, they had indicated a rise in October.

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That dented interest in gold, which as a non-yielding asset tends to benefit from ultra-low rates.

The U.S. central bank largely dismissed financial market volatility, a slowdown in Europe and a weak inflation outlook as factors that might limit progress towards its unemployment and inflation goals.

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"The feeling was that given the turmoil markets had seen earlier in the month, maybe the Fed might have been a little more dovish," Michael Lewis, head of commodity research at Deutsche Bank said. "(But) what the Fed said was that that hadn't changed its outlook."

"Our sense is that there are still obviously more adjustments still to come in terms of rates, dollar, and equity risk premium," he added. "The adjustment is higher in terms of real rates, and the dollar, and we do feel that gold will be breaking those lows."

Gold, which hit a 15-month low of $1,183.46 earlier this month -- a level it bounced off in 2013 -- fell 1.3 percent on Wednesday after the Fed statement was released.

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Commerce Department data showed on Thursday that a smaller trade deficit and a surge in defense spending buoyed U.S. growth in the third quarter, though other details of Thursday's report hinted at some loss of momentum.

Although gold prices are expected to find good support at $1,200 an ounce, a key psychological chart level, analysts said downward momentum remains strong.

"Overwhelming bearish pressures weigh on the metal, with both technical and fundamental indicators pointing lower," UBS said in a note. "(That could take) the price towards significant support at 1183.23, (the) October low, which also coincides with December 2013 low."

In a reflection of investor sentiment, the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings fell 1.2 tonnes to 742.40 tonnes on Wednesday, a six-year low.