Gold Prices to Swing Next Week Ahead of Federal Reserve QE Taper Decision

Gold prices are poised to oscillate next week in the run-up to the US Federal Reserve's monetary policy decision, expected on 18 December.

Eight of 23 analysts polled in a Kitco Gold Survey said they expected gold prices to go up. Nine predicted that prices would drop while six forecast prices to remain unchanged.

The US has put out stronger-than-expected retail sales and jobs data. Traders fear that upbeat economic data, together with the tentative budget deal, could compel the Fed to trim its asset buys as early as next week.

Any reduction in the Fed's $85bn-a-month bond buying stimulus would boost the US dollar and reduce gold's safe-haven investment appeal, eventually pulling down gold prices. Upbeat economic data forced gold to shed 2.2% on 12 December, its sharpest decline in 10 days.

Commerzbank Corporates & Markets said in a note to clients: "Due to recent strong employment data and the budget deal in Congress, there is now an increased risk that the Fed will begin tapering its bond buying (QE3) at next week's FOMC meeting. But with inflation continuing to fall, drifting increasingly below the 2% target rate, we believe it more likely that the Fed will only act in March."

Adrian Day, chairman and chief executive officer of Adrian Day Asset Management told Kitco: "An as-yet undetermined $23bn cut in spending over 10 years in a $17tr deficit is meaningless. And spending goes up over $60bn next year against the previously determined budget, and down $23bn sometime later. It's a farce. Yet the market thinks this provides cover for the Fed to cut back on bond buying. Even with a budget, there is still the possibility of a fight over raising the debt ceiling in February. So a gross overreaction to eventual tightening.... But for now, it's 'me against the market".

Gold Ends Higher

Spot gold finished 0.9% higher at $1,235 an ounce on 13 December, after rising 1.2% to a session high of $1,257.20. Prices witnessed flat trade a week ago, after the release of US labour market data.

US gold futures for delivery in February finished 0.8% higher at $1,234.60 an ounce on 13 December.

For the week as a whole, gold futures gained 0.46%.