Tags: Gold | Falls | Fed | Stimulus

Gold Falls Most This Year as Fed Gives No Signs of New Stimulus

Wednesday, 29 February 2012 12:53 PM

Gold fell as much as $100 to below $1,700 an ounce on signs that that the Federal Reserve will refrain from offering more monetary stimulus to bolster the U.S. economy.

In testimony before Congress Wednesday, 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 0.8 percent against a basket of major currencies, eroding the appeal of the precious metal as an alternative investment. Tuesday, 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.”

In electronic trading on the Comex in New York, gold futures for April delivery fell $91.40, or 5.1 percent, to $1,697 at 4:39 p.m., compared with Tuesday’s settlement. Earlier, the price tumbled as much as $100, or 5.6 percent, to $1,688.40, the lowest for a most-active contract since Jan. 25.

The settlement at the close of floor trading was $1,711.30, down 4.3 percent, the most since Dec. 14. The price, down 1.7 percent this month, has gained 9.2 percent in 2012.

In the week ended Feb. 21, hedge funds and money managers boosted bullish bets on gold futures by 9.9 percent to 179,132 contracts, the highest since Sept. 13, the latest government data showed on Feb. 24.

On Feb. 27, holdings in exchange-traded products backed by gold rose to a record for the second straight session, according to data compiled by Bloomberg.

‘Vulnerable’ Market

“Bernanke’s comments seem to have eliminated hopes of U.S. quantitative easing coming anytime soon,” William O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey, said in a telephone interview after the Comex settlement. “There were excessive net longs on hopes of more credit easing, so the market was vulnerable to these kind of statements, and it almost seemed as if Bernanke was trying to take the steam out of the commodity market.”

The Fed chairman 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 Wednesday 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.

Total Comex volume was an estimated 341,210 contracts, the highest since Jan. 27.

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Wednesday, 29 February 2012 12:53 PM
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