Gold Drops Below $1,200 to Close at Lowest Since '10 on Taper

Thursday, 19 Dec 2013 01:43 PM


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Gold futures dropped below $1,200 an ounce to the lowest Comex settlement in more than three years as the Federal Reserve scaled back U.S. monetary stimulus, reducing demand for a store of value. Silver tumbled.

The Fed will cut monthly asset purchases to $75 billion from $85 billion, partly because of an improving outlook for jobs, Chairman Ben S. Bernanke said yesterday after officials concluded a two-day meeting. U.S. equities jumped to a record, and the dollar headed for the longest rally in almost seven weeks, eroding the appeal of gold as an alternative investment.

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Exchange-traded products backed by the metal lost $72.9 billion in value this year, and mining companies wrote down at least $26 billion as futures headed for the biggest annual drop since 1981. Billionaire John Paulson, the largest holder in the SPDR Gold Trust, the biggest ETP, said on Nov. 20 that he personally wouldn’t invest more money into his gold fund because it’s not clear when inflation will quicken.

“Some people may have been holding out hope that we could get a rally if we didn’t get the Fed’s taper, but they’re throwing in the towel at this point,” Frank Lesh, a trader at FuturePath Trading LLC in Chicago, said in a telephone interview. “The market believes the Fed that a gradual taper isn’t going to stop the recovery.”

Gold futures for February delivery fell 3.4 percent to close at $1,193.60 an ounce at 1:45 p.m. in New York, the lowest settlement for a most-active contract since Aug. 3, 2010. Earlier, the metal touched $1,191.60, the cheapest intraday price since June 28.

Bear Market

The price slumped into a bear market in April and has tumbled 29 percent this year, heading for the first annual drop since 2000. Some investors lost faith in the metal amid low U.S. inflation and the equity rally.

Fed officials raised their assessment of the employment outlook, predicting the jobless rate will fall as low as 6.3 percent by the end of next year, compared with a September forecast of 6.4 percent to 6.8 percent.

Policymakers may hold interest rates close to zero percent even if unemployment falls below the 6.5 percent rate the central bank had cited as a catalyst for an increase, “especially if projected inflation continues to run below” the 2 percent goal, the Fed said in a statement.

Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system. The price has plunged 38 percent from a record $1,923.70 in September 2011.

Hedge Funds

Hedge funds and other speculators raised their net-long position in Comex gold by 25 percent to 33,449 futures and option contracts in the week ended Dec. 10, government data showed on Dec. 13. Short bets, which slid 6.7 percent to 74,312, are within about 7 percent of the record in July.

Gold will probably reach a bottom by April as the Fed “does whatever it takes” to reach their inflation target, Michael Pento, the president of Pento Portfolio Strategies in Colts Neck, New Jersey, said in a telephone interview.

Global equities have advanced to the highest in almost six years, and U.S. inflation is running at 1.2 percent, almost half the rate of the past decade. Gold ETP holdings slumped 32 percent this year, headed for the first drop since they started trading in 2003.

The dollar rose for the third straight day against a basket of 10 currencies. Gold often moves inversely to the greenback.

Metal ‘Suffered’

“Gold has suffered all year on tapering fears, and it is perhaps no surprise that the Fed’s announcement has caused further liquidation,” said Mark Newson-Smith, head of sales at Xconnect Trading Ltd. in London.

Billionaires George Soros and Daniel Loeb sold their entire investments in the SPDR Gold Trust in the second quarter.

Gold for immediate delivery fell 1.8 percent to $1,196.72 at 2:31 p.m. Earlier, the price touched $1,192.84, the lowest since June 28.

On the Comex, trading was 37 percent higher than the average for the past 100 days, according to data compiled by Bloomberg.

Silver futures for March delivery tumbled 4.4 percent to close at $19.186 an ounce on the Comex, the lowest since Dec. 3. The price has dropped 37 percent this year.

On the New York Mercantile Exchange, platinum futures for January delivery slid 1.8 percent to $1,318.40 an ounce. Earlier, the price touched $1,311.70, the lowest since July 5.

Palladium futures for March delivery dropped 0.5 percent to $696.30 an ounce.

Editor's Note: Get Tom Luongo's Gold Stock Adviser — Click Here Now!

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