A golden artefact.

Gold fell 2 percent to a 4-1/2 month low on Friday after minutes from the US Federal Reserve highlighted increasing concerns over its highly stimulative monetary policy, knocking stock markets lower and boosting the dollar.

Fears that central banks' money-printing to buy assets would stoke inflation were a key driver in boosting gold, which rallied to an 11-month high in early October after the Fed announced a third round of aggressive economic stimulus.

Spot gold was down 1.97 percent at $1,630.25 per ounce at 14:01 SA time, after earlier falling to its lowest since late August at $1,625.79. It was heading for its sixth week of losses - the longest such run since June 1999.

US gold futures for February fell 2.65 percent or $44.30 an ounce to $1,630.30.

“We've had a big reaction from gold to the Fed minutes, and the dollar has strengthened,” Standard Chartered analyst Daniel Smith said.

“People are concerned that the quantitative easing programme (QE) may be withdrawn sooner rather than later,” Smith added.

Minutes from the Fed's December policy meeting showed some voting members of the Federal Open Market Committee were increasingly worried about the potential risks of the Fed's asset purchases on financial markets.

Ultra-loose monetary policy had combined with historically low interest rates to stoke fears of inflation, fuelling the rally in gold.

Christin Tuxen, an analyst with Danske Bank, said the gold market had been focused on the size of the QE programme rather than on when it would be phased out.

“The timing will be earlier than the market had been initially expecting, which is negative for gold,” Tuxen said.

Recent positive US economic data has bolstered the view that further steps to stimulate the economy may be unnecessary. Investors were keenly awaiting US non-farm payrolls data due at 15:30 SA time on Friday for a clue to the pace of recovery.

The figures are expected to show the economy added 150,000 jobs last month, after adding 146,000 in November. Tuxen said that if the payrolls data reveals that the economy added at least 200,000 jobs, gold prices could extend losses.

Holdings of the largest gold-backed, exchange-traded fund (ETF), New York's SPDR Gold Trust GLD, dropped 0.71 percent on Thursday from Friday, while those of the largest silver-backed ETF, New York's iShares Silver Trust SLV, fell 0.04 percent on Friday from Monday.


Technical analysts, who study past chart patterns to determine future moves in prices, said the failure of key support at $1,635 could lead to a further retracement.

“Since the peak we saw in early October, we've been in a downtrend,” Cliff Green of the Cliff Green Consultancy said. “The rally from $1,635 to $1,695 has always been just a correction within that downtrend, and this (current move) is a resumption of that.”

He added, “If we break (support around $1,635), we're vulnerable to a movement down toward the $1,600 area. Our short- to medium-term outlook is bearish. We've had a good correction against that trend, which looks complete, and now we're resuming that downward path.”

Among exchange-traded funds, the SPDR Gold Trust reported an outflow of 9.638 tonnes yesterday, the biggest one-day decline in its holdings since Sept. 26.

Lower prices spurred buying from jewellers in Asia, keeping premiums for gold bars steady in Singapore at $1.10 to $1.20 to spot London prices.

The Shanghai Gold Exchange will lower trading margins and daily trade limits for its gold and silver forward contracts to meet growing investor demand, the bourse said on Friday.

Among other precious metals, silver was down 2.82 percent to $29.28 an ounce, after also slipping to a 4-1/2 month low at $29.20 in earlier trade.

Silver's underperformance made the metal its cheapest compared to gold since late August, with 55.76 ounces of silver now equivalent to one ounce of gold, against 50.4 in early December.

Platinum group metals also fell, although they outperformed gold and silver. Platinum fell 1.13 percent to $1,541.25 and palladium slipped 1.28 percent to $680.75 an ounce. - Reuters