Gold price crashes to six-month low after Fed taper

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Bullion price dropped as much as 1% on Wednesday after the US Fed announced a cut in its usual bond purchase. Bullion price dropped as much as 1% on Wednesday after the US Fed announced a cut in its usual bond purchase.
SummaryGold price hits its lowest in around six months in intraday trade on Thursday...

Gold price hit its lowest in around six months in intraday trade on Thursday, extending a 1% drop a day before, on the US Federal Reserve's decision to scale back its bullion-friendly stimulus measures that had propelled a rally in the precious metal's prices to record highs in recent years.

After hitting their lowest level since late June of $1,200.25, spot gold gained slightly to $1,203.85 an ounce by 1000 GMT, still down by 1.2%. US February gold futures shed $32 an ounce at $1,203.00.

The bullion dropped as much as 1% on Wednesday after the Fed announced a cut of $10 billion in its usual bond purchase programme of $85 billion a month starting January next year, contending that the world's largest economy was on a relatively strong footing. Although it ended uncertainties, investors began to worry about the impact on the precious metal despite the US central bank minimising its taper with a continued dovish signal on interest rates. A 0.5% rally of the dollar against a basket of currencies and a 1.5% rally in European shares pointed to loss of lustre of the precious metal.

Importantly, gold had advanced by 16% and 12% in the first six months of the QE1 in 2008 and the QE2 in 2010.

The precious metal’s prices have crashed roughly 27% this year, mainly on apprehensions that the Fed might curtail its bond purchases before the end of 2013. Uncertainty over the timing of the move had also stoked volatile trading. 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 pressures. Gold prices peaked in 2011 at $1,920.30 an ounce after the US economy was downgraded by rating agency Standard &Poor's.

Muted physical demand from India and China, the world's leading consumers, have also taken the shine off the precious metal. Gold imports in India dropped 79% in the three months through September to $3.5 billion from the quarter before following a series of official crackdown, including a hike in import duty on the precious metal to 10% from 8% and norms mandating that 20% of the gold imported must be kept aside for re-exports.

In November, the imports were to the tune of $1.2 billion compared with the monthly average of more than $4 billion

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