Gold Price Slips as QE3 Outlook Dims

Gold prices fell $18.91, or 1.2%, to $1,557.98 per ounce on Thursday in the aftermath of yesterday’s Fed minutes and a better than expected U.S. economic report this morning.  The spot price of gold was also pressured by further strength in the U.S. Dollar Index, which climbed to 83.824 – its highest level since July 2010.  The dollar’s rally weighed on not just the gold price, but the broader commodity and equity markets as well.

Wednesday’s release of the latest Fed minutes – a recap of the June FOMC meeting – revealed that while the U.S. central bank would consider launching a third round of quantitative easing (QE3) if the U.S. economy continued to worsen, the Federal Reserve does does not appear likely to launch such a program in the near term.

Nic Brown, head commodities analyst at Natixis, wrote in a note to clients that “The market can pretend that QE3 isn’t important, but it is one of the fundamental factors that is supporting gold prices.  It is a case that any hints, any clues that are coming out of the Fed over when they might do it, whether they might do it are absolutely central to gold prices.  There have been a few comments by FOMC members suggesting they are more prepared for QE, but the Fed minutes we got last night gave a much more balanced, more neutral view of things.”

Adding to the headwinds for the price of gold was this morning’s report on U.S. weekly jobless claims.  At 350,000, the data came in well below the 372,000 consensus estimate among economists.  Furthermore, the employment data provided a welcome respite from the recent stretch of disappointing economic data in the U.S.

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