Gold price slumps on QE hangover
Frankfurt (Oct 31) Gold prices in Europe plummeted on Friday as the end of quantitative easing, or QE, in the US and strong US gross domestic product figures continued to cause "carnage" by shoring up dollar strength.
Spot gold was trading down 2.1 per cent at $US1,174.07 a troy ounce in morning European trade.
The Federal reserve confirmed Wednesday that the end of QE was nigh. Furthermore, 3Q GDP data out of the US came in at 3.5 per cent -- above expectations of 3 per cent which is bearish for gold as it strengthens the dollar.
Gold and silver are dollar-denominated commodities, growing more expensive for other currency-holders to purchase when the dollar gains. This tends to lead to a fall in demand and in price.
"It's a continuation from the move on Wednesday, which was driven by the strength in the dollar following the FOMC [Federal Open Market Committee] outcome and there was an acceleration this morning when the $US1,180 level was breached," said Joni Teves at UBS.
That the $US1,180 level was breached was "psychologically important" for gold, said Eugen Weinberg at Commerzbank.
On the back of sell-offs, gold touched lows of $US,167.63, its lowest level since July 2010.
The uncertainty surrounding the Swiss gold vote could help push prices higher, said Mr. Weinberg, as demand could spike.
Physical buyers have also a role to play, but a marginal one, according to Cailey Barker at Numis Securities, and are unlikely to be able to support an upswing alone. Asked what might save gold: "The bottom falling out of the world somewhere," said Mr. Barker.
Silver took a hit, as it "bore the brunt" of the FOMC fallout, said Suki Cooper at Barclays. "It tends to follow in gold's footsteps, unless its own fundamentals are pretty strong," she said, adding the "macro picture is perhaps one that's not silver favorable at the moment."
Silver was down $US2.8 at $US16.006 an ounce in morning European trade.
More industrial metals in the precious metals complex felt the pinch, too, but less so. Platinum was down 0.8 per cent at $US1,230.10 an ounce, and palladium was down 0.2 per cent at $US777.50 an ounce.