Tags: Gold | Plunge | Bernanke | Stimulus

Gold Falls in ‘Manic’ Plunge as Bernanke Damps Stimulus Bets

Thursday, 01 Mar 2012 07:48 AM

Gold and silver futures tumbled the most in two months on signs that that the Federal Reserve will refrain from offering more monetary stimulus to bolster the U.S. economy.

In testimony before Congress today, Fed Chairman Ben S. Bernanke gave no signal that the central bank will take new steps to boost liquidity. The dollar rose as much as 0.6 percent against a basket of major currencies, eroding the appeal of precious metals as an alternative investment. Yesterday, gold reached $1,792.70 an ounce, a three-month high.

“People were expecting that the Fed would loosen policies, even if the perception is that the economy is doing well,” James Dailey, who manages $215 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania, said in a telephone interview. “The investor sentiment changed as the Fed committed to nothing. This is the manic nature of the market.”

Gold futures for April delivery fell 4.3 percent to settle at $1,711.30 at 1:59 p.m. on the Comex in New York, the biggest drop since Dec. 14. The price, down 1.7 percent this month, has gained 9.2 percent in 2012.

Silver futures for May delivery slumped 6.9 percent to $34.642 an ounce, the largest decline since Dec. 14. Earlier, the metal reached $37.58, the highest price since Sept. 22. The commodity, up 4.1 percent in February, has climbed 24 percent this year.

“The market is very, very disappointed as there is no mention of any additional stimulus,” Fain Shaffer, the president of Infinity Trading Corp. in Medford, Oregon, said in a telephone interview.

Inflation ‘Subdued’

Bernanke said the inflation outlook is “subdued.” Gold had climbed this month as gasoline costs jumped, spurring demand for the metal as a hedge against increasing consumer prices.

Keeping monetary stimulus is warranted even as the unemployment rate falls and rising crude-oil prices may cause inflation to accelerate temporarily, Bernanke said.

The Fed said today in its Beige Book business survey that the U.S. economy expanded at a “modest to moderate pace” in January and early February, bolstered by manufacturing.

On the New York Mercantile Exchange, platinum futures for April delivery fell 1.8 percent to $1,692.60 an ounce, the biggest drop since Deb. 29. The metal, up 6.6 percent this month, has climbed 20 percent in 2012.

Palladium futures for June delivery declined 1.9 percent to $708.40 an ounce, the biggest drop since Jan. 6. The price, up 3.2 percent in February, has advanced 8 percent in 2012.


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