Tags: gold | decline | Bernanke | Fed

Gold Hits One-Month Low on Bernanke's Reduced Stimulus Talk

Wednesday, 19 June 2013 04:21 PM

Gold fell to a one-month low after the Federal Reserve chairman said he expects to slow the pace of the central bank's bond purchases later this year and bring them to a halt around mid-2014.

After trading higher most of the session, bullion prices tumbled after the Fed sharply lowered its forecast for inflation in a statement released at the end of its two-day policy meeting. The precious metal fell further after Fed Chairman Ben Bernanke said at a later press conference on the Fed's decision that "the committee currently anticipates that it will be appropriate to moderate the monthly pace of purchases later this year."

Bernanke said the Fed will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year if the Fed's economic forecasts are correct.

Gold fell as global markets were rattled by the Fed chief's comment, with U.S. equities falling around 1 percent and Treasury bond yields, seen as U.S. short-term interest rates, rising sharply and the dollar index up 1 percent.

"Bernanke is talking about pulling away stimulus, and that's not really what the market wants to hear. The more stimulus there is, the more powerful the inflationary case for gold," said Sean McGillivray, head of asset allocation at Great Pacific Wealth Management.

Spot gold was down 1.3 percent to $1,349.86 an ounce by 3:49 p.m. EDT, having hit $1,348.99, its lowest price since May 20. Prior to the Fed announcement, U.S. Comex gold futures for August delivery settled up $7.10 an ounce at $1,374. Trading volume was at around 125,000 lots versus its 30-day daily average of 215,000, preliminary Reuters data showed.

Since Bernanke said last month the bank could scale back its stimulus measures, gold prices have fallen in tandem with the S&P 500.

McGillivray, however, said gold might still benefit from Fed stimulus in the near term. "I don't think the country can stop buying bonds. The economy is still fragile and the cost of capital will increase so substantially as you are seeing in bonds right now," he said.

The yield on benchmark U.S. Treasury notes rose to a fresh 14-month high on Wednesday after Bernanke's remarks.

INFLATION GAUGE LOWERED

In a statement, the Fed's policy-setting panel offered a more upbeat assessment of the risks facing the economy than they had after they last met in May. In a sharp downgrade, the Fed forecast the PCE price index, its preferred gauge of the price pressures facing consumers, would rise just 0.8 to 1.2 percent this year. However, it saw inflation heading back to 1.4 to 2 percent in 2014 and 1.6 to 2 percent in 2015.

"You are looking at continued slow growth but no inflation and no panic on the horizon, that makes gold less attractive and ultimately makes stocks more attractive," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.

Among other precious metals, silver was down 1.6 percent at $21.30 an ounce. Platinum dropped 1.7 percent to $1,415.49 an ounce and palladium fell 2.2 percent to $692.22 an ounce.

© 2019 Thomson/Reuters. All rights reserved.

   
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Gold fell to a one-month low after the Federal Reserve chairman said he expects to slow the pace of the central bank's bond purchases later this year and bring them to a halt around mid-2014.
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2013-21-19
Wednesday, 19 June 2013 04:21 PM
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