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Gold reverses early gains, U.S. stimulus outlook eyed

Source : REUTERS
Last Updated: Mon, Sep 16, 2013 08:53 hrs
An employee arranges gold jewellery in the counter as her arm is reflected in the mirror at a gold shop in Wuhan

Gold slipped on Monday, reversing early gains as growing conviction the U.S. Federal Reserve would decide to roll back its stimulus from this month dented the metal's appeal as a hedge against inflation.

The consensus is that the Fed will initially reduce its bond purchases, now $85 billion a month, by $10 billion or perhaps $15 billion and will announce the taper to its quantitative easing (QE) after its September 17-18 meeting.

Spot gold, which posted its steepest weekly drop in more than two months last week, had slipped 0.1 percent to $1,324.61 an ounce by 0650 GMT after hitting an intraday high of $1,334.46. Silver fell nearly 2 percent.



News that former Treasury Secretary Lawrence Summers had dropped out of the race to head the Fed boosted bullion prices briefly as he is seen as more hawkish than the other main contender Janet Yellen. Markets however do not expect this to derail the near-term tapering process.

"Yellen is perceived to be more dovish than Summers," said Barnabas Gan, an analyst at OCBC Bank in Singapore. "It seems that there may be more resistance in faster tapering of the QE program if Yellen becomes the chairman," Gan said.

Gold has plunged about 20 percent this year on tapering fears, after twelve straight annual gains.

INVESTOR SENTIMENT BEARISH

Easing geopolitical tensions in Syria also hurt gold's safe-haven appeal on Monday.

The United States agreed to call off military action against Syria under a deal with Russia to remove President Bashar al-Assad's chemical weapons stockpile.

Hedge funds and money managers slashed bullish bets in futures and options of the U.S. gold markets for the first time in 5 weeks, pressured by easing tensions over Syria and expectations that the Fed will begin to unwind its monetary stimulus, a weekly report by the Commodity Futures Trading Commission showed on Friday.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.66 percent to 911.12 tonnes on Friday -- its biggest decline since August 1.

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