Gold dives to lowest since July on Fed, hedge fund talk

NEW YORK Thu Feb 21, 2013 3:10am IST

Customers are reflected in a mirror as they look at gold accessories at a gold store in Xuchang, Henan province February 15, 2013. REUTERS/China Daily

Customers are reflected in a mirror as they look at gold accessories at a gold store in Xuchang, Henan province February 15, 2013.

Credit: Reuters/China Daily

Related Topics

NEW YORK (Reuters) - Gold tumbled 2.5 percent on Wednesday to its lowest price since July after minutes of the Federal Reserve's meeting last month showed the U.S. central bank may have to slow or stop buying assets before a pick-up in the job market.

Silver and platinum group metals also dropped sharply.

Before the Fed released its minutes, bullion was already down sharply as rumors swirled that a large commodity hedge fund had been forced to liquidate its holdings, which triggered a broad sell-off in industrial commodities led by crude oil.

Selling accelerated after bullion slipped below two key resistances at $1,600 and $1,575 an ounce. It completed a bearish technical formation known as a "death cross", when its 50-day moving average broke below its 200-day moving average.

"It's clear the funds are not coming in to support the market, and I don't see any physical interest either. There has been a clear rotation out of gold and other commodities into equities," said Bill O'Neill, partner of commodities investment firm LOGIC Advisors.

Spot gold was down 2.5 percent to $1,564.05 an ounce by 4:17 p.m. EST (2117 GMT), having hit $1,558.24, its lowest since July 12.

U.S. gold futures for April delivery settled down $26.20 at $1,578 an ounce, with trading volume about 50 percent above its 250-day average, preliminary Reuters data showed.

The Federal Open Market Committee minutes said current U.S. economic conditions might lead the policy-setting committee "to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred" .

The Fed voted last month to maintain its third round of quantitative easing, known as QE3, at an $85 billion monthly pace. It said it would buy bonds until it saw a substantial improvement in the outlook for the labor market, which remains under pressure with the jobless rate at 7.9 percent.

"People are taking a step back and asking themselves 'Is the Fed going to stop quantitative easing earlier?'" said Axel Merk, chief investment officer of Merk Funds which manages $630 million in mutual fund assets.

Minutes from the December meeting also showed some policymakers had been mulling a lessening or complete withdrawal of Fed stimulus.

ECONOMIC OUTLOOK IN FOCUS

Gold has been seesawing between hopes of central-bank easing which boosted its inflation-hedge appeal, and expected economic improvement which dent its safe-haven status, said Jeffrey Sherman, commodities portfolio manager of DoubleLine Capital, which manages more than $53 billion in assets.

"I do not think the Fed will stop asset purchases in the calendar year," Sherman said.

Other money managers cited gold's pullback to anticipation of a sharp move into equities and longer-yield Treasuries because of a better global economic outlook.

U.S. equities fell on the Fed minutes on Wednesday, but the benchmark S&P 500 index .SPX remained near its all-time high.

Silver fell 3.1 percent to $28.52 an ounce, platinum dropped 2.6 percent to $1,644.25, and palladium was down 3.3 percent at $735.97 an ounce.

(Editing by Chizu Nomiyama and David Gregorio)

FILED UNDER:
Photo

After wave of QE, onus shifts to leaders to boost economy

DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.

Obama In India

Reuters Showcase

Coal Mining

Coal Mining

India to open coal to commercial mining firms soon, minister says  Full Article 

RBI Loan Rules

RBI Loan Rules

RBI relaxes overseas loan recast rules   Full Article 

E-commerce Firms

E-commerce Firms

Amazon, e-commerce rivals fuel commercial property boom in India  Full Article 

Growth Forecasts

Growth Forecasts

Indian economic growth forecasts pegged back, despite rate cuts: Reuters Poll.  Full Article 

Uber is Back

Uber is Back

Uber back in Delhi; govt says must await approval.  Full Article 

Markets at Record

Markets at Record

Sensex rises to record after ECB stimulus programme.  Full Article 

Pharma Sector

Pharma Sector

Ipca Labs hit by FDA ban on plant for standard violations.  Full Article | Related Story 

Forex Reserves

Forex Reserves

India FX reserves at record high as RBI fortifies defences  Full Article 

QE for Euro Zone

QE for Euro Zone

ECB launches 1 trillion euro rescue plan to revive euro economy.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage