Despite the Fed’s Decision to Not to Taper Stimulus, Bullion Heads Lower

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Despite the Fed’s Decision to Not to Taper Stimulus, Bullion Heads Lower
Despite the Fed’s Decision to Not to Taper Stimulus, Bullion Heads Lower

Despite the Fed’s Decision to Not to Taper Stimulus, Bullion Heads Lower

Gold is heading for the first annual decline since 2000, even after the Fed’s decision not to taper its stimulus came up the past week. This has even surprised analysts who had expected that gold will be in demand as a hedge against inflation. However, some investors lost faith in the yellow metal as a store of value amid evidence of faster economic growth.

Earlier, the Federal Reserve of the U.S. on Sept. 18 declared that it would not taper stimulus unless it sees a significant improvement in the labor market. All those who were definite about the Fed’s move that it will taper the stimulus were surprised. Now that hedge funds have cut bullish gold bets and reduced long contracts to the lowest since June, gold is all set to fall further.

Market observers believe that a lot of investors got caught offside with the Fed’s lack of action and in consequence not only gold but several other precious metals have been falling like a stone. Whereas the Bloomberg U.S. Treasury Bond Index increased 0.8 percent, the Standard & Poor’s GSCI Spot Index of 24 commodities dropped 1.8 percent last week.

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Diminishing Appetite for Gold

Bullion is expected to further extend losses as the U.S. economy improves and it may drop below $1,250 an ounce before the end of the year. This is happening due to the economic data that shows that investors are expecting that the Fed will start reducing its asset purchases later sometime this year, and according to estimates gold will be fluctuating between $1,250-1,405.

Market observers also believe that thanks to the U.S. recovery, the price of gold is going down and the value of greenback is increasing – in such circumstances, gold is heading for the first annual drop in 13 years. The yellow metal was doing well till the last month and early weeks of this month; however, after the Fed’s decision, the demand for the dollar and stocks has increased in comparison to gold.

Gold for December delivery dropped 0.5 percent to $1,326.10 on the Comex. Similarly, there was also little change in the immediate delivery of the precious metal at $1,326.53 an ounce at 2:56 p.m. in Singapore. In London this year, gold tumbled 21 percent and the USD gained 2.6 percent. It was also a good year for global stocks which climbed 14 percent.

To contact the reporter of this story: Jonathan Millet at john@forexminute.com