Gold price rally fades, Credit Suisse sees $1,000 on the horizon

Good day on Wall Street, bad day for gold

The gold price on Thursday gave up hard fought gains wracked up on Wednesday after a decision by the US Federal Reserve to throttle back its economic stimulus program.

On the Comex division of the New York Mercantile Exchange, gold futures for April delivery – the most active contract – last traded at $1,243.30 an ounce, shedding $18 from yesterday’s close.

The Federal Open Market Committee as widely expected announced another $10 billion a month cut to purchases under its quantitative easing program.

The move boosted the dollar, which usually moves in the opposite direction to the yellow metal.

Gold was also hurt by a turnaround in fortunes on US stock markets which have endured a steep losses for the better part of a week.

US stocks gained after news that the world’s largest economy grew by a stronger than expected 3.2% in the final quarter of last year.

The gold price has been moving higher in recent weeks on safe haven buying as emerging markets tumble and currencies crash, but a dearth of fresh fallout from the likes of Turkey, South Africa and India diminished the metal’s allure as a safe haven.

Investment and bullion bank Credit Suisse came out with a research note on Thursday predicting a drop for gold to $1,000 on the back of:

  • a rise in real US interest rates
  • subdued inflation expectations
  • reduced systemic risk to the financial system and therefore less safe-haven buying
  • a drop in Indian gold imports
  • central bank unwillingness to stock up on gold even as prices fell

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