PRICE OF GOLD JUMPS ON FED DECISION / THE FINANCIAL TIMES

Last updated: September 18, 2013 7:25 pm

 

Price of gold jumps on Fed decisión

 

By Emiko Terazono in London

 

 

 

 

Gold jumped 4 per cent on the US Federal Reserve’s decision to maintain its easy monetary policy, recovering the $1,300 level it had breached during earlier trading.

 

The yellow metal, which fell as much as 1.4 per cent to $1,291.34 a troy ounce before the Fed statement, rose to $1,364.25.

Analysts said traders and investors were expected to keep a close eye on the currency markets in the aftermath of the Fed’s decision.

“The US dollar reaction as always will be key for gold,” said James Steel, analyst at HSBC in New York.

Over the past week, gold bears have taken the opportunity for the fall in geopolitical risk in Syria to sell gold.

 

While worries of an escalation in the Syrian conflict have provided support for the precious metal, those concerns have diminished after the agreement between the US and Russia over the country’s chemical weapons hoard.

The rally and the sell-off in gold prompted by the news flow out of the Middle East suggest that “the Syria premium has disappeared”, said Goldman Sachs.

The next US policy event that is likely to affect gold prices is the negotiations over the US debt ceiling.

Goldman said concerns about the debt ceiling could “support gold prices near term” despite expectations of an ultimate agreement. The Wall Street bank is neutral on gold until the end of this year.

However, it expects the yellow metal to resume its “decline heading into 2014 when we expect economic data to solidly confirm a reacceleration in US growth”, it said, forecasting gold to be at $1,050 at the end of next year.

On the tapering risks, analysts also pointed to pressure on emerging market countries.

Any turmoil in emerging market currencies, which affects their foreign currency reserves and current accounts, could weigh on gold prices as it could force such countries to slow their domestic purchases of the yellow metal and imports.

Physical demand for gold in India has been hit by the weakness in the rupee.

 

The Indian government this week increased import duty on gold and silver jewellery from 10 to 15 per cent, although tariffs on gold bars remained unchanged at 10 per cent.

 

Analysts said because jewellery demand in India is considerably more important than for coins and bars, the higher import duty is still likely to have a negative effect on gold demand in India.

In China, where price-sensitive buyers have been active after prices fell below $1,400, purchases have eased off over the past few weeks.

Credit Suisse said Hong Kong premiums over London prices had fallen back and said investors there were waiting for a return in upward momentum for the yellow metal.

 

Copyright The Financial Times Limited 2013.