Gold Spot Price Plunging on Tapering Concerns

on Sep 12, 2013
Listen, Thursday, September 12: Gold price plunged today on strong expectations that the US Federal Reserve will decide to scale back its stimulus programme at its FOMC meeting next week and waning prospects of a military strike against Syria. The precious metal was down 2.57 percent at $1,330.19 an ounce as of 14:23 BST.

Meanwhile, traders have been awaiting today’s weekly jobless claims report from the US Labour Department, hoping to see more clues on the timing of potential tapering, but the figures turned in clouded due to data processing issues in two states.
**Jobless data**
Jobless claims in the US declined sharply by 31,000 to 292,000 in the week ended September 7, in contrast with expectations for a slight increase. This was the lowest level of claims since 2006, but the data was strongly impacted by some glitches with data processing. An analyst for the Labour Department said that the majority of the decline appeared to have occurred because two states were upgrading their computer systems and did not process all the claims they had received during the week. The analyst declined to clarify which two states reported the problems, but said that the unprocessed data would be included in the following’s week report.

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Another factor, potentially distorting data for last week was the Labour Day holiday that saw most offices and work sites in the country closed on Monday of that week.

**QE tapering**
!m[US Jobless Claims Data Clouded due to Processing Issue](/uploads/story/5439/thumbs/pic1_inline.jpg)
But despite being inconclusive, the jobless data only reinforced the feeling that a scale back of stimulus will come soon. The US central bank holds its policy meeting next week and the general expectations are that at the meeting it would reduce its monthly purchases of Treasury paper and prime mortgage debt. A Bloomberg survey conducted on September 6 showed that the Fed will trim the quantitative easing programme by $10 billion from its current volume of $85 billion a month.

The programme has been one of the main drivers for prices of gold and other commodities and its reduction will hurt the precious metal.
“Although the Fed tapering has been priced in already by the gold market, that is not to say that you won’t be getting a bit of a wobble as of when it is announced,” opined Rhona O’Connell, head of metals research and forecasting at Thomson Reuters GFMS.


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