Gold Slides to Three-Week Low as Dollar Strengthens After Fed

New York (Oct 30)  Gold fell to a three-week low as a stronger dollar cut demand after the Federal Reserve ended its asset-purchase program because of an improving labor market. China, the biggest bullion buyer, is probing a surge in precious-metals exports.

The Bloomberg Dollar Spot Index rose to the highest since Oct. 6, after climbing the most in three weeks yesterday, when the Fed ended a two-day meeting. China sent investigators to the southern province of Guangdong to look into precious-metals shipments that rose to about $10.8 billion in September from $1.39 billion a year earlier, as the government intensifies scrutiny of irregularities in the country’s trade figures.

Fed officials, voting to proceed with plans to end monthly bond-buying, dismissed recent turmoil in global financial markets and focused on employment gains. Rising interest rates reduce gold’s allure because the metal generally offers investors returns only through price gains, while a stronger dollar typically cuts demand for a store of value.

“Quantitative easing ends in the U.S., with the FOMC appearing more positive on the economic outlook,” Daniel Hynes, Sydney-based senior commodity strategist at Australia & New Zealand Banking Group Ltd., wrote in a note today. “This elicited a strong rally in the dollar and selling in gold. Movement in the dollar over the next few days could set the tone for commodities into the year end.”

Gold for December delivery fell 1.7 percent to $1,203.80 an ounce by 7:30 a.m. on the Comex in New York. It reached $1,201.10 today, the lowest since Oct. 6, the day prices set this year’s low. Bullion for immediate delivery lost 0.6 percent to $1,204.34 in London, according to Bloomberg generic pricing.

Trading Volume

Futures trading volume was 57 percent above the average for the past 100 days for this time of day, data compiled by Bloomberg show.

The Chinese team includes staff from the Ministry of Commerce and General Administration of Customs, said people familiar with the matter who asked not to be identified because the information hasn’t been made public. The probe comes after China uncovered almost $10 billion in fraudulent trade nationwide as part of an investigation begun in April last year and disclosed in June 94.4 billion yuan ($15.2 billion) of loans backed by falsified gold transactions.

Bullion slid 28 percent last year and investors dumped metal from gold-backed exchange-traded products on expectations for reduced U.S. stimulus as the economy improves. ETP holdings fell 2.6 metric tons yesterday to 1,649.5 tons, remaining at a five-year low, data compiled by Bloomberg show.

The Fed statement was “more hawkish than what the market was expecting,” Edward Meir, an analyst at INTL FCStone Inc., wrote in a note. “The Fed will be inclined to raise rates sooner rather than later.”

Silver for delivery in December dropped 2.8 percent to $16.785 an ounce in New York, after reaching $16.77, the lowest since Oct. 6. Palladium for delivery the same month fell 1.5 percent to $788.55 an ounce. Platinum for January delivery declined 1.3 percent to $1,253.20 an ounce.

Source: Bloomberg