Gold plunges to 7-month low on Fed stimulus concerns

Investing.com - Gold futures extended heavy losses from the previous session on Thursday to fall to the lowest level since July, as speculation the Federal Reserve might end its bond-buying program sooner-than-expected dampened the appeal of the precious metal.

Prices came under additional pressure from a weak technical outlook and market talk that a large hedge fund was liquidating positions.

On the Comex division of the New York Mercantile Exchange, gold futures for April delivery traded at USD1,564.60 a troy ounce during European morning trade, down 0.85% on the day.

Prices fell by as much as 1% earlier in the session to hit a daily low of USD1,554.80, the weakest level since July 12.

Gold prices were likely to find near-term support at USD1,548.45 a troy ounce, the low from June 28 and resistance at USD1,609.00, Wednesday’s high.

Gold futures sold off after the minutes of the Fed’s January meeting showed that policymakers discussed the slowing or stopping of USD85 billion in monthly bond purchases even before the job market improves, amid concerns that the policy could cause instability in financial markets.

Several Fed officials said the central bank should be prepared to vary the pace of the asset-purchase plan depending on the outlook or how the program was working. One wanted to vary it on a meeting-by-meeting basis.

The Fed minutes indicated the central bank will review its quantitative easing program in March.

Moves in the gold price this year have largely tracked shifting expectations as to whether the U.S. central bank would pump more money into the financial system.

The possibility that the Federal Reserve could end its bond-buying run this year helped buoy the U.S. dollar.

The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was up 0.25% to trade at 81.36, the strongest level since November 16.

Meanwhile, a weak technical picture continued to weigh on the precious metal as investors remained hesitant to enter the market and open fresh long positions amid bearish chart signals.

Gold prices went into a “death cross” on Wednesday, triggering a flurry of sell orders. A “death cross” occurs when the 50-day moving average price falls below the 200-day moving average.

From a technical standpoint, gold could see further losses, with market analysts warning of a possible move towards the USD1,550-level.

Elsewhere on the Comex, silver for March delivery tumbled 0.9% to trade at USD28.36 a troy ounce, while copper for March delivery dropped 1.1% to trade at USD3.567 a pound.