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plans to bring the era of easy money to an end.
Gold plunged after Fed chairman Ben Bernanke said on Wednesday the US economy was expanding strongly enough for the central bank to begin slowing the pace of its bond-buying stimulus later in 2013.
Its fall picked up momentum after it broke through its April low at US$1 321 an ounce, a key support level, taking it as low as US$1 295,74/oz, its weakest since September 2010.
Spot gold was down 4 percent at US$1 298,29/oz, while US gold futures for August delivery were down US$74/oz at US$1 300.
“Ben Bernanke was certainly indicating an end to quantitative easing, and that’s what the market is reacting to,” Deutsche Bank analyst Daniel Brebner said.
“We’re seeing a stronger dollar, real rates are looking quite strong, inflation is very low and US 10-year yields are at 2,4 percent. In that environment, gold is going to suffer.”
Bonds, shares and commodities fell sharply around the world yesterday and the dollar rose after Mr Bernanke’s comments.
The ultra-loose monetary policy brought in by the Fed to boost US growth, which kept interest rates at rock bottom levels while stoking concerns about inflation, was a major factor fuelling a more than decade-long bull run in gold that took prices to record highs in September 2011.
Indications that the policy was nearing an end have helped push prices down more than 20 percent in 2013 after 12 straight years of gains.
Waning investment interest in gold has been signalled by heavy redemptions from gold-backed exchange-traded funds, whose holdings are down more than 350 tonnes so far in 2013.
Swiss bank UBS early yesterday cut its gold price forecasts for the next three years to US$1 440 from US$1 600 for 2013; to US$1 325 from US$1 625 in 2014; and to US$1 200 from US$1 500 in 2015, citing the Fed’s move.
“This creates an increasingly difficult environment for gold,” it said. “Slowing Fed asset purchases, with the end now potentially in sight, higher yields, a stronger dollar and continued improvements in the economy are significant obstacles that perpetuate an already very weak investor sentiment.”
Silver was the biggest faller among the precious metals, sliding more than 6 percent to a session low at US$19,90/oz, its weakest since September 2010. The metal was later down 5,8 percent at US$20,13/oz.
Silver prices are now down nearly a third this year. The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose to its highest since August 2010 yesterday at 64.41 as silver underperformed.
Spot platinum was down 1,2 percent at US$1 392,99/oz, while spot palladium was down 2,4 percent at US$677,72/oz. — Reuters.
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