Gold trading outlook: futures slump on strong dollar after FOMC

Gold futures opened Thursdays session for a nine-month low, after the Fed appeared more hawkish after its September meeeting, boosting the dollar to a new 4-year high.

Gold futures for December delivery on the Comex in New York traded at $1 223.1 per troy ounce by 7:24 GMT, down 1.04%. Prices ranged from a nine-month bottom at $1 216.6 to $1 225.3 per troy ounce. The contract is down ~1% so far this week.

“Technically, gold looks vulnerable, with the psychological $1 200 and the critical $1 180 now a real possibility of being tested in the coming days or weeks,” MKS Group dealer Jason Cerisola said for Reuters.

Silver for December delivery stood for a 1.24% daily drop at $18.502 per troy ounce, while palladium was down 1.15% at $829.40. October platinum was down 0.95% at $1 349.20.

The highly anticipated Federal Open Market Committee (FOMC) Spetmeber meeting took place this week, with rate and quantitative easing decisions announced yesterday. The FOMC decided to keep the central lending rate rate unchanged at 0.25%, while cutting the QE monthly spending by another $10bn to $15bn, steering the program to an October/November close.

“That liquidity is coming to an end and its going to have a negative impact on gold,” Rob Kurzatkowski, a senior market strategist with optionsXpress in Chicago, said for The Wall Street Journal.

The Feds monetary policy body also decided to keep the key phrase of “significant time”, as to project a rate hike after the QE program has concluded in late 2015, meaning policy-makers are still not completely confident in the recovery.

The key moment was, however, the update on the rate hike pacing, with the US central bank now seeing the benchmark lending rate at 1.375% by end of 2015, up from the previous forecast of 1.125%.

“The shift higher in the anticipated Fed funds rate for the end of 2015 and 2016 could further weigh on gold prices longer term and act as a headwind to future rallies,” HSBC analysts said in a note cited by Bloomberg. “If the dollar remains firm, gold should stay on the defensive.”

The US dollar Index reached a new four-year high on Feds announcements, pressuring all dollar-denominated commodities, such as gold.

Data

A bunch of economic data was also reported yesterday, though it had marginal impact in comparison with the FOMC decision.

US benchmark CPI at the disappointing 1.7% on an annual basis and -0.2% month-on-month in August, while core CPI, which excludes the more volatile food and energy, was reported at 1.7% from a year ago.

Meanwhile, Eurozone CPI readings for August were also logged today, with benchmark consumer inflation at the disappointing 0.4% annual rate. These figures are the last inflation figures to cover a period before the European Central Bank (ECB) reduced the central lending rate to the historic low of 0.05% and announced a €3tn QE program at its September meeting. The positives of ECB’s intervention will not be visible until the next CPI readings.

Weak economic data out of the Eurozone weighs on the euro, which is the US dollar’s main competitor, and as such, any weakness in the euro translates into a stronger dollar, which in turn weighs on gold.

Investors now eye upcoming data on US jobless claims, set to log slightly positive figures, while housing starts and building permits, leading gauges for the retail sector, which accounts for 13% of US GDP, are looking at somewhat bearish projections. Philly Fed manufacturing is also forecast to be worse than last month, setting the stage for some corrections in dollars rally.