Gold Suffers Sharp Losses In Wake Of Hawkish FOMC Statement, Higher USD Index

(Kitco News) - Gold prices closed sharply lower and hit a two-week low Thursday, in the aftermath of an FOMC statement that is being read as more hawkish than dovish. A higher U.S. dollar index on this day also helped to pressure the precious metals. Thursday saw the biggest one-day drop in gold and silver prices in months. February Comex gold was last down $30.60 at $1,255.30 an ounce. Spot gold was last down $27.20 at $1,256.60. March Comex silver last traded down $1.243 at $16.845 an ounce.

A sharp drop in U.S. weekly jobless claims also favored the gold and silver market bears. Jobless claims were the lowest in nearly 15 years and is one clue the Federal Reserve could move to raise U.S. interest rates sooner rather than later.

The market place on Thursday was still digesting Wednesday’s Federal Reserve’s Open Market Committee statement that left U.S. monetary policy unchanged, saying the Fed remains “patient” on raising interest rates. However, the FOMC statement removed the “considerable time” wording regarding a timeframe for waiting to raise interest rates.
Many market watchers initially read the FOMC statement as a bit dovish, but as they had time to study the statement they then saw it as being more hawkish. Recent developments, including plunging crude oil prices, economic troubles in the European Union, currency market turmoil, and other countries moving to stimulate their monetary policies, have led many to believe the Fed might not be able to raise interest rates until late this year, or may have to wait until 2016.

Greece remains not far from the front burner of market place concerns. The new leftist Greek prime minister has already rolled back some austerity measures that he claims have hampered the Greek population. Greece is just one more problem the European Union has to address.

Those of you who follow me on Twitter know that I warned a week or so ago about the dangers of “currency wars.” Many major central banks of the world are now working to deflate their currencies in order to improve their own country’s economic health. The present outlier of this bunch is the U.S., which has seen the Federal Reserve already spend years to ostensibly deflate the U.S. dollar, but is now on a track to raise interest rates and the dollar is appreciating. Asian and some European currencies are starting to feel the strains of the currency wars. This situation merits very close monitoring in the coming weeks. Currency market turmoil can lead to a worldwide financial contagion and loss of investor confidence. Such would be a bullish development for safe-haven gold.

The London P.M. gold fixing is $1,275.50 versus the previous A.M. fixing of $1,275.50.

Courtesy: Kitco News