Forexpros – Gold futures came under heavy selling pressure on Wednesday, falling to the lowest level since mid-January with losses fuelled by an upbeat assessment of the U.S. economy by the Federal Reserve, which reduced expectations for a third round of U.S. monetary easing by the central bank
On the Comex division of the New York Mercantile Exchange, gold futures for April delivery traded at USD1,651.75 a troy ounce during U.S. morning trade, plunging 2.5%.
It earlier tumbled by as much as 3% to trade at USD1,639.45 a troy ounce, the lowest since January 16.
Gold futures were likely to find support at USD1,625.85 a troy ounce, the low from January 13 and resistance at USD1,706.15, the previous day’s high.
Gold traders continued to unwind long positions after the Fed said Tuesday that it saw signs of an improving economy and expected the unemployment rate to keep falling. The Fed also said strains in the global financial markets have eased.
Markets widely expected the Fed to be a little more upbeat on the U.S. economy than at their last meeting in January, which tends to support a growing sense that the central bank won’t look to pursue further monetary stimulus.
A reduced likelihood of additional monetary stimulus can be viewed as a negative for gold, as the metal is seen as a safe store of value and benefits when inflationary fears rise.
Gold prices lost nearly 5% on February 29, when Fed Chairman Ben Bernanke failed to mention another round of easing in a statement in his testimony to the U.S. Congress.
However, policymakers reiterated their intention to keep the benchmark interest rate unchanged at a record low through late 2014 and made no changes to its Operation Twist program to replace shorter-term Treasurys in its balance sheet with longer-term debt.
Investors are now looking to the Fed’s policy meetings in April and June for decisions about any new directions for policy.
At both meetings, Bernanke will hold a news conference and officials will make public updated economic and interest rate projections.
The upbeat Fed assessment boosted the dollar, which traded at a one-month high against the euro and an 11-month top against the yen.
The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was up 0.24% to trade at 80.83, the highest since January 18.
A stronger U.S. dollar usually weighs on gold, as it dampens the metal’s appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.
Technical selling also pressured gold after it broke below a key support level close to USD1,649, triggering fresh sell orders from hedge funds and large institutional investors.
Elsewhere on the Comex, silver for May delivery dropped 1.55% to trade at USD33.06 a troy ounce, while copper for May delivery tumbled 1.1% to trade at USD3.859 a pound.
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