Gold stays lower as dollar rebounds after FOMC
NEW YORK |
NEW YORK (Reuters) - Gold turned lower on Wednesday as a stronger dollar dampened the metal's status as a hedge against the falling U.S. currency, even though the U.S. Federal Reserve said it would keep key interest rates at record lows.
The Federal Reserve Open Market Committee (FOMC) upgraded its assessment of the U.S. economy, saying activity had picked up after a severe downturn. This should provide a favorable environment for the commodities sector.
The U.S. central bank kept key U.S. interest rates unchanged, and said it would keep rates low for an extended period.
The precious metals initially received a boost as the dollar fell to a one-year low against the euro. However, the dollar turned higher amid a weakening equities market.
"If the dollar remains on the defensive because of the low interest rate, then it is certainly supportive to gold," said James Steel, chief commodities analyst at HSBC in New York.
"The Fed said that the U.S. recovery is underway, and that is generally commodities friendly," he said.
U.S. December gold futures were down $6 at 3:52 p.m. EDT at $1,009.50 an ounce on the COMEX division of New York Mercantile Exchange. Prior to the FOMC decision, December settled down $1.10 at $1,014.40.
Spot gold was at $1,008 an ounce, down from $1,013.80 quoted late in New York on Tuesday.
Bullion prices remained within striking distance of last week's 18-month high at $1,023.85 and the March 2008 historic peak at $1,030.80.
Analysts are mindful that a sharp price rally combined with record high in noncommercial long positions in the U.S. futures market could lead to a brutal bout of selling.
"If you add the ETF holdings to COMEX positioning at record highs, I think that might be a concern," VM Group analyst Matthew Turner said.
Last year, bullion lost more than $100 only a few days after it powered to the record high.
"We continue to view gold and silver prices warily due to large speculative long positions, although if the dollar remains weak there will be no correction," UBS metals analyst John Reade said in a note to clients.
Underlying support could be seen, as the physical sector saw buying from main consumer India, but other consumers were hesitant.
"India continues to buy but I guess other consumers are quite cautious this time around. I don't think people dare to cash in right now especially after the market has bounced back from below $1,000," said a dealer in Singapore.
India's gold purchases have picked up as the festive season gained steam in the world's largest consumer of bullion.
Among other precious metals, silver was at $16.80 per ounce, compared with $17.10 late in New York on Tuesday.
Platinum was at $1,322.00, down from $1,332.00 while palladium was last at $292.00, compared with its previous finish of $300.00.
(Additional reporting by Veronica Brown in London and Lewa Pardomuan in Singapore; Editing by David Gregorio)
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