Gold for December delivery falls 4.1%, to $1,734.10 an ounce in New York

Gold futures tumbled sharply on Thursday as the dollar rallied in the wake of the Federal Reserve’s bond-swap program and pessimistic economic data from China further damaged sentiment.

Gold for December delivery  was off $74.20, or 4.1%, to $1,734.10 an ounce on the Comex division of the New York Mercantile Exchange, near session lows. It had traded as low as $1,731.20 an ounce earlier.

“You’ve got liquidation, people are going into cash and Treasurys,” said Matt Zeman, head trader and strategist at Kingsview Financial in Chicago. “Fear is dictating the gold market.”

A preliminary Chinese manufacturing survey showed growth moderating. With China a major consumer of natural resources, metals prices tend to be sensitive to any signs of a slowdown.

Closer to home, investors were spooked by Fed language in Wednesday’s policy statement following the conclusion of the Federal Open Market Committee meeting. Some also expressed worries the U.S. central bank’s swap program will do little to help the economy.

The Fed has decided to sell shorter-term Treasurys totaling $400 billion and purchase long-term Treasurys, in a bid to keep interest rates low.

The moves, said the Fed, were made against a backdrop of “significant downside risks to the economic outlook, including strains in global financial markets.”

Low interest rates are beneficial to gold in the long run because they keep the opportunity cost of holding gold low, but the heavy selling affecting other assets such as stocks and oil made investors overlook that, at least for now.

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