Gold slides after Fed ‘twist’ disappoints

Gold fell 1 per cent on Wednesday after the Federal Reserve opted, as widely expected, to tweak monetary policy to stir US growth, disappointing some investors who had hoped for stronger stimulus measures.

A spike in the US dollar against a basket of currencies also pushed the precious metal below $1,800 an ounce, a level it had stayed above for most of the session.

Trading was light, with volume in gold futures about 30 per cent below the 30-day average.

In the past, gold has rallied on Fed stimulus measures aimed at fixing the economy. The precious metal gained more than 40 per cent during a $600 billion bond buying program, dubbed Quantitative Easing 2 or QE2, which the Fed ran from November 2010 to June this year.

Gold bulls have since been hoping for a QE3, although many analysts doubt the Fed will go that way.

In Wednesday’s statement issued after its latest policy meeting, the Fed said it would launch a $400 billion program to twist its $2.85 trillion balance sheet more heavily toward longer-term securities.

The central bank said it would fund the purchase by selling short-term government debt to purchase longer-dated.

“The Fed didn’t expand the size of its balance sheet, so it doesn’t equate to QE3,” Tom Pawlicki, precious metals analyst at MF Global in New York, said, explaining the pullback in gold.

“Also, it’s move to keep short-term interest rates firm has made the dollar look somewhat more attractive, weighing on commodities in general,” Pawlicki said.

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