Gold slides over taper fears

The precious metal is off 1.6%, as traders fear the Federal Reserve will tighten its monetary policy.

Gold dropped over 5% in October, weighed down by dealers’ concerns that the US central bank will reduce the size of it stimulus package in the ‘coming months’. The Federal Reserve’s next meeting is on 18 December, and some investors are already preparing themselves for a tapering of the $85 billion-per-month bond-buying package.

The latest US ISM manufacturing purchasing managers index (PMI) came in at 57.3, which was an increase on the October reading and exceeded the estimates of 55.2. The improvement in the US economy is precisely the reason why traders feel the Fed will lower its bond-buying scheme: investors have the mentality that good news for the US economy is bad news for the gold market.

On Friday, the US will announce the latest non-farm payrolls and unemployment rate. Since the Fed has tied its policy to the jobless rate, any drop in unemployment could send the price of gold heading towards the $1200 level.

Spot gold chart

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.