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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.