Gold falls 1% globally on Fed tapering, poor China demand

Written by fe Bureau | New Delhi | Updated: Jan 31 2014, 08:39am hrs
Gold dropped 1% in intraday trade on Thursday, responding to a surge in the dollar after the US Federal Reserve decided to further cut its bullion-friendly monetary stimulus and weak Chinese demand for the precious metal. Copper hit a near two-month low in London intraday and aluminium dropped to a near five-year trough, while brent crude oil stayed below $108 a barrel, as the Fed tapering decision weighed.

The Fed last night decided to reduce its monthly bond purchases by another $10 billion as it went ahead with a plan to gradually roll back its stimulus measures, despite recent sell-off in emerging markets. Consequently, the dollar surged by 0.5% against a basket of currencies, making commodities more expensive for users of other currencies. The central bank had effected a similar cut in December as well.

After gaining almost 1% on Wednesday, spot gold tumbled 1% to $1,254.70 an ounce by 1249 GMT on Thursday, while US February gold futures lost $7.60 at $1,254.60 an ounce, partly due to profit-booking by some funds.

Global gold prices lost 28% last year the steepest annual plunge since 1982 capping 12 straight years of advance, mainly on apprehensions that the Fed might curtail its bond purchases before the end of 2013. Initial uncertainty over the timing of the move had stoked volatile trading before the Fed finally announced its decision on tapering in December.

An end to the Fed's quantitative easing programme hurt gold, as the precious metal's rally in recent years was aided by a low interest rate environment, which prompted investors to shift to haven assets like gold to beat inflationary pressure. Muted physical demand from key consumer India for most part of the last year has also taken the shine off the precious metal.

Among other commodities, brent crude for March delivery rose 6 cents to $107.91 a barrel by 1243 GMT having inched up by 44 cents in the last session. March US crude gained 42 cents at $97.78, having hit its highest since December 31 at $97.97 per barrel due to a spike in demand for the heating oil following extreme cold weather. Copper prices hit its lowest since early December on Thursday on lacklustre demand from China ahead of a week-long holiday starting Friday for the Lunar Day, while overproduction in aluminium pressured the metal to its lowest level in nearly five years.

Three-month copper on the London Metal Exchange ruled at $7,115 a tonne, down from $7,127 a tonne at Wednesday's close, as weak Chinese PMI data stoked fresh uncertainties about the economic recovery.

Aluminium prices crashed to $1,728 a tonne, having hit their lowest since July 2009 at $1,726.75 earlier in the session. The metal had closed at $1,742 a tonne on Wednesday.