Gold falls as dollar rebounds after Fed cites economic gains

Gold fell (COMEX:GCZ13) as the dollar rebounded after the U.S. Federal Reserve cited “improvement in economic activity and labor market conditions.”

The greenback gained as much as 0.3% against a basket of 10 currencies, eroding gold’s appeal as an alternative investment. Earlier, the metal rose as much as 1.1%, while the dollar dropped 0.3%. Fed policy makers said today they will press on with $85 billion in monthly bond purchases to bolster the economy.

“The dollar strength is keeping gold under pressure,” Michael Gayed, the chief investment strategist who helps oversee $270 million at New York-based Pension Partners LLC, said in a telephone interview. “The safe-haven premium is diminishing as the Fed sees signs of economic improvement.”

Gold for immediate delivery fell 0.2% to $1,342.95 an ounce at 3:07 p.m. New York time. The metal traded around $1,355 prior to the Fed statement at 2 p.m.

This year, gold has slumped 20%, heading for the first annual drop since 2000. Some investors lost faith in the metal as a store a value amid a U.S. equity rally to a record and tame inflation.

Gold rose 70% from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system. Policy makers will delay scaling back the pace of debt purchases until March, according to economists surveyed last week by Bloomberg.

On the Comex in New York, gold futures for delivery in December rose 0.3% to settle at $1,349.30 an ounce at 1:41 p.m. The price fell as low as $1,334.50 in electronic trading after the Fed announcement.

www.bloomberg.com

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