December 18, 2013 / 10:39 AM / 6 years ago

PRECIOUS-Gold drops in volatile trade after Fed says to cut stimulus

* Fed to cut monthly stimulus to $75 bln
    * Also lowers inflation, unemployment outlook
    * Stock market rally, dollar gains pressure gold
    * Coming up: U.S. Core PCE Price index Friday


    By Frank Tang
    NEW YORK, Dec 18 (Reuters) - Gold fell about 1 percent in
choppy trade on Wednesday, after the U.S. Federal Reserve
lowered its inflation forecast and signalled better prospects
for the economy as it announced plans to trim its bond-buying
stimulus.
    In what amounts to the beginning of the end of its
unprecedented support for the U.S. economy, the central bank
said it would reduce its monthly asset purchases by $10 billion,
bringing them down to $75 billion.
    Bullion initially rose after the U.S. central bank said it
"likely will be appropriate" to keep overnight rates near zero
"well past the time" that the jobless rate falls below 6.5
percent, especially if inflation expectations remain below
target. 
    The metal tumbled in late sessions as the dollar extended
its rally and the S&P 500 equities index rose nearly 2
percent to close at a record high.  
    "There is no inflation anywhere in sight. At the end of the
day, you're going to have a stronger dollar when you take the
fear out of financial markets," said Frank McGhee, head precious
metals dealer at Chicago commodities brokerage Alliance
Financial LLC.
    Spot gold was down 0.8 percent at $1,219.21 an ounce
by 4:15 p.m. EST (2115 GMT). Its session low was $1,215.70, only
$4 above a five-month low of $1,211.44 set on Dec. 4.
    U.S. gold futures for February delivery settled up
$4.90 an ounce at $1,235 prior to the Fed announcement.
    Turnover was weak, considering the volatile gold market.
Trading volume was about 10 percent below its 30-day average,
preliminary Reuters data showed.
    
    FED LOWERS INFLATION OUTLOOK
    In fresh quarterly forecasts, the central bank lowered its
expectations for both inflation and unemployment over the next
few years, acknowledging the jobless rate had fallen faster than
expected.
    Three policymakers expect the first rate rise to come in
2016, up from only two policymakers in September, while 12 of
the Fed's 17 top officials still see the move in 2015.
    Other analysts said that gold prices should still be
underpinned in the longer term as the U.S. central bank is
expected to react slowly to creeping inflation.
    "The Fed is all but promising to be behind the curve in
raising interest rates when inflation does pick up," said Axel
Merk, portfolio manager of California-based Merk Funds, which
has about $450 million worth of assets under management.
    Investment interest in physical gold funds continued to
wane. The world's largest gold-backed exchange-traded fund, New
York's SPDR Gold Shares, reported another 2.1-tonne
outflow from its holdings on Tuesday. 
    Among other precious metals, silver was down 0.4
percent at $19.79 an ounce. Platinum fell 0.8 percent to
$1,334.74 an ounce, while palladium was down 0.2 percent
to $695.97 an ounce.
 4:15 PM EST     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold FEB   1235.00   4.90   0.4  1215.20 1244.00  150,442
 US Silver MAR  20.059  0.219   1.1   19.425  20.265   40,999
 US Plat JAN   1342.70  -1.90  -0.1  1330.30 1355.50   14,536
 US Pall MAR    699.45  -1.60  -0.2   697.00  710.50    4,272
                                                              
 Gold          1219.21 -10.39  -0.8  1216.45 1244.25         
 Silver         19.790 -0.080  -0.4   19.690  20.240
 Platinum      1334.74 -10.99  -0.8  1338.20 1357.00
 Palladium      695.97  -1.28  -0.2   698.90  708.25
                                                              
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        155,665   172,085   187,998     21.35    0.28
 US Silver       44,913    56,366    57,730     30.95    0.72
 US Platinum     21,312    11,386    12,549     16.41    0.16
 US Palladium     4,309     6,659     5,926     21.05   -1.02
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