Gold Prices To Drop Next Week As Federal Reserve QE Taper Signals US Recovery

Gold prices are set to drop next week as an improving US economy and the US Federal Reserve's stimulus taper decision are expected to further dent the metal's safe-haven investment allure.

As many as 11 of 23 analysts polled in a Kitco Gold Survey said they expected gold prices to fall, eight predicted that prices would drop and four forecast prices to remain unchanged.

The US central bank said this week that the world's largest economy was strong enough to handle a gradual reduction in its massive asset buying stimulus.

The Fed annoucement is expected to boost the US dollar and weigh down on gold. The Fed's easy money policy boosted gold to an all-time high of $1,920.30 an ounce in 2011.

The metal's investment-hedge attraction took a beating earlier in the week after US lawmakers reached a two-year budget deal, which would ease automatic spending cuts and reduce the risk of a federal shutdown.

Darin Newsom, senior analyst at DTN told Kitco: "Both the major long-term and secondary intermediate-term trends are down. Major support is at the monthly low of $1,179.40 from June 2013."

Adam Hewison, president and chief strategist with INO and MarketClub.com, said: "Bruno the bear is coming on strong next week and Bruno the bear has been right all year. The trend is bearish and Bruno has the odds in its favour for gold to hit $1,000 in 2014."

Andrew Cole, a Baring Asset Management investment manager, told Reuters: "We are in an environment where we are going to need a much bigger problem in the world than we foresee for gold to recapture any of its luster."

Gold Ends Higher

Spot gold finished 1% higher at $1,201 an ounce on 20 December, after dropping to $1,185.10 in intra-day trade. Prices rose 0.9% a week ago, in the run-up to the Fed monetary policy decision.

US gold futures for delivery in February finished 0.8% higher at $1,203.07 an ounce on 20 December.

For the week as a whole, gold futures lost 2.7%. Prices have dropped some 28% so far this year.

Prices dropped to a three-year low on 19 December and remained on track to log their first decline in 13 years.

Gold prices dropped 3.3% to $1,195 an ounce on Thursday, the lowest finish since August 2010, following the Fed announcement.