Gold prices declined on Monday amid speculation of tighter monetary policy by the United States Federal Reserve. The precious metal came under pressure after Fridays’’ release of the minutes of the FOMC’s December meeting which suggested that the Fed may end stimulus measures. This means it could halt its asset purchase program which was gold-friendly, by the end of this year.
Such news led to a flow out of gold as it was bearish for the gold market.
Gold is usually used as a hedge against inflation which tends to be caused by central bank stimulus measures. So any signs of lower inflation and no more stimulus leads investors out of bullion.
Losses in U.S. stocks on speculation about weaker corporate earnings also weighed on gold prices.
Spot gold fell 0.6 percent to $1,646 an ounce by the start of New York trading on Monday. Meanwhile US gold contract for February delivery lost $2.60 and closed lower at $1,646.30.
However, any sign of disappointing growth in the US economy could lead the Fed to refrain from changing course any time soon. Gold prices could quickly rebound if economic data suggests the pace of recovery is too slow to justify withdrawal of Fed stimulus.