Gold Falls to 4-Week Low as Dollar Gains After Fed Purchase Plan

Sept. 23 (Bloomberg) -- Gold fell to a four-week low in London as the dollar’s rally cut demand for the metal as an alternative asset after the Federal Reserve said it will buy longer-maturity U.S. debt. Palladium slid to a nine-month low.

The dollar climbed to a seven-month high against six major currencies after the Fed moved to lower long-term borrowing costs and said there are “significant downside risks” to the economic outlook. Commodities including copper and crude oil slid today. Gold touched a record $1,921.15 an ounce on Sept. 6.

“We’re seeing the dollar strengthen and that’s weighing down on the whole commodity complex,” Dan Smith, an analyst at Standard Chartered Plc in London, said today by phone. Still, “we don’t see a huge downside for gold in this environment. There will be a rebound at some point.”

Immediate-delivery gold declined as much as $26.38, or 1.5 percent, to $1,755.97 an ounce, the lowest price since Aug. 25, and was at $1,756.93 by 11:19 a.m. in London. Gold for December delivery was 2.7 percent lower at $1,759.20 on the Comex in New York.

The metal fell to $1,765.50 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,793 at yesterday’s afternoon fixing.

Bullion is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify away from equities and some currencies. The metal is up 24 percent this year, outperforming global stocks, commodities and Treasuries.

Fed Purchases
The Fed said yesterday it will buy $400 billion of bonds with maturities of six to 30 years through June, while selling an equal amount of debt maturing in three years or less. It will also reinvest maturing mortgage debt into mortgage-backed securities instead of Treasuries. The action “should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,” the Fed said.

“We see the stronger dollar weighing on all commodities including gold,” Lv Xiaowei, an analyst at First Futures Co., said from Tianjin, China. “If the global economy continues to deteriorate, there will come a point where we’ll see both gold and the dollar going higher together as people look for least risky assets.”

Open interest in the Comex option to buy gold at $1,800 that expires on Sept. 27 is 10,133 contracts, Bloomberg data show. That’s “gaining attention” and as the expiry date nears “prices may increasingly gravitate towards the $1,800 strike level,” Edel Tully, a London-based analyst at UBS AG, wrote today in a report.

Gold exchange-traded-product holdings were little changed at 2,236.7 metric tons yesterday, data compiled by Bloomberg show. Assets reached a record 2,298.4 tons on Aug. 8.

Silver for immediate delivery fell as much as 3.7 percent to $38.2225 an ounce, the lowest price since Aug. 12, and was last at $38.285. Platinum slid 1.7 percent to $1,731.88 an ounce after dropping to $1,730.15, the lowest price since Aug. 9. Palladium was 4 percent lower at $664 an ounce, the lowest level since Nov. 26.