Gold prices have edged lower after the Federal Reserve cut bond purchases as expected and said economic growth is back on track after dropping off during the winter.
In electronic trading, gold for June delivery, the most active contract, on Wednesday fell 0.3 per cent to trade at $US1,293.40 a troy ounce on the Comex division of the New York Mercantile Exchange. Shortly before the Fed announced its decision, June gold ended the regular trading session down less than 0.1 per cent, at $US1,295.90 an ounce.
The Fed cut another $US10 billion from its monthly bond purchases, as expected. The bond-buying program, which now stands at $US45 billion a month, seeks to push down long-term borrowing rates to spur investing, spending and hiring.
“Growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions,” the Fed said in a statement.
The optimistic statement makes it easier for investors to brush aside recent weak data.
On Wednesday morning, government data showed the US economy grew in the first quarter at one of the weakest paces in five years, with gross domestic product advancing at a seasonally-adjusted annual rate of 0.1 per cent. Economists surveyed by The Wall Street Journal had forecast growth at 1.1 per cent for the quarter.
“Perhaps the gold bulls see the writing on the wall, with rates going higher at some point and the Fed looking to get out of the stimulus business,” said Matt Zeman, a senior market strategist with Kingsview Financial, a futures brokerage in Chicago.
Gold prices are down more than seven per cent from their mid-March peak, as traders have cut back their holdings of the safe-haven asset amid indications that the US economy was recovering. Many investors bought gold in the wake of the financial crisis on expectations that it would keep its value better than other assets. But as the global economic picture improves and the Fed continues to trim its bond-buying program, demand for protective investments like gold has been fading.