Gold set for its largest monthly decline since January

Gold fell by more than 3 percent on Thursday, set for its largest monthly decline since January, after the Federal Reserve’s move to boost U.S. growth lifted the dollar, which battered thecommodities complex.

Adding to the pressure was a key gauge of Chinese manufacturing that showed a third consecutive month of contraction, which sent palladium to its lowest in 10 months.

The Reuters-Jefferies CRB index of commodities .CRB was set for its biggest one-day slide since the “flash crash” in raw materials prices in early May this year.

Warning of “significant” downside economic risks, the U.S. central bank said it would launch a $400 billion program to shift its $2.85 trillion balance sheet more heavily toward longer-term debt.

The decision, while widely-expected, disappointed investors who had hoped for stronger stimulus measures, which prompted a slide in stocksand commodity prices.

The dollar index rose to seven-month highs .DXY after the Fed’s decision heightened the appeal of shorter-dated U.S. debt and gave the greenback’s yield-appeal an edge over that of othercurrencies, which in turn delivered a blow to gold.

Spot gold was last down 3.2 percent at $1,724.79 an ounce by 1408 GMT (10:08 a.m. ET), its lowest since late August. December gold futures were down 4.4 percent at $1,729.50.

“Everyone says they’re concerned about economies everywhere, but I suppose it’s dollar strength. That’s what I’m putting it down to,” said Peter Hillyard, ANZ head of metal sales in Europe.

“The textbook ideas, the things we follow, the things we believe to be so are being shot to pieces for the moment and it’s very difficult to trade other than for a long-term view,” he said.

Gold has fallen by 4.8 percent so far in September, plagued by rising volatility and the strength of the dollar, although so far this quarter, it has hit record highs above $1,900 an ounce and is up 18 percent in its largest quarterly rally in 25 years.

“Looking at gold, you have periods when you have strength in the dollar and rising gold, when both are seen as safe-havens, but right now, you’d have thought that gold would be well supported given the European situation, the U.S. situation and a slowing China,” said Societe Generale analyst David Wilson.

“It’s really the dollar rally that is not particularly helpful,” he said. – Reuters

Posted by VBN on Sep 24 2011. Filed under Gold. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry