Precious Metals Ease on Profit Taking

Precious metals prices rose yesterday as its inflation-hedge appeal received a boost after the U.S. Federal Reserve took an unprecedented step to commit to near-zero interest rates as long as unemployment remains high.

This morning US Gold futures tumbled more than 1%, after the Federal Reserve’s announcement of a fresh round of bond buying pushed prices to their highest levels in nearly two weeks. The Federal Reserve announced the plan to purchase $45 billion in longer-term Treasuries each month on top of the $40 billion monthly buying of mortgage-backed securities, as expected, but set inflation and unemployment threshold for exit strategy. After the announcement gold rose above $1,720. This was its highest level since November 30. But till today morning heavy profit booking had been seen. In other news on the U.S. economy, the “fiscal cliff” talks could drag on past Christmas as sharp differences remained between congressional Republicans and the White House on how to avert steep tax hikes and budget cuts.

Gold holdings  of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,351.42 tons, as on Dec 11. Silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 9,829.15 tons, as on Dec. 5.

The US Dollar Index (DX) continued to extend losses of the previous day and ended 0.3 percent lower on Wednesday. Rise in the risk appetite amongst the market participants caused by announced of further stimulus package by the US Federal Reserve.

The euro gained 0.5 percent on account of positive market sentiments on account of further stimulus package announced by the US Federal Reserve to boost the labor market.  Strength in the euro was also due to affirmative comment by the Bank of Greece governor that the nation’s bond buyback was successful raising hopes that the debt crisis is being reduced. However, unfavorable data from the region capped gains in the currency.

China produced 34.6 tonnes of gold in October, bringing total output over the first 10 months of the year to 322.8 tons up 11 percent from a year ago, the Ministry of Industry and Information Technology said yesterday. While South Africa’s gold output nearly halved in October from the same period last year, highlighting the impact of a wave of wildcat strikes that swept the sector, data showed.

Gold is expected to remain weak ahead of the US Fiscal Cliff negotiations as traders are worried about adding positions with unknown tax increases looming for next year. Silver tumbled in Asian trading this morning also as the demand for precious metals dipped and industrial metals lowered after the US Federal Reserve also lowered its growth estimates for next year.