Mexico’s proposed higher mining royalties could block nearly $7bn in investments
The Mexican government proposed raising mining royalties under the argument that metal prices have risen in recent years.
The gold price extended its losses on Wednesday after the US Federal Reserve announced that it would cut its monthly bond purchases from $65 billion to $55 billion.
By late-afternoon the precious metal was trading at $1,329 per ounce, a 2% drop on the previous day, and its lowest point so far this month.
Following a meeting of the Federal Open Market Committee (FOMC) on Wednesday, the Fed wrote in a statement that since its last meeting in January “labor market indicators were mixed but on balance showed further improvement.”
“The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.”
The gold price has been dropping over the past three days after the situation in Ukraine simmered, lowering demand for gold as a safe-haven asset.
This week’s sharp drop is inconsistent with steady gains seen since the beginning of the year. And the precious metal is still doing much better today than it was at the end of 2013 when it fell below $1,200 an ounce.
Many traders were expecting the Fed to reduce stimulus spending this month, which is probably why the yellow metal didn’t drop as much on Wednesday as it did when the Fed was just hinting at a possible tapering of its bond-buying program last summer.
The US government has been buying billions of dollars worth of mortgage-backed securities and longer-term Treasury securities each month since 2008 when the financial crisis hit. Gold soared as investors lost confidence in the US economy and dollar. But ever since the Fed announced last year that it would look at reducing its bond-buying program, the gold market has been unstable, shedding 28% of its value last year.
