Bloomberg News

Gold Plunges to Four-Week Low on Bernanke’s Stimulus Outlook

June 19, 2013

Gold declined to the lowest in four weeks after the Federal Reserve Chairman Ben S. Bernanke said the central bank may “moderate” the pace of U.S. bond purchases later this year.

“If the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year,” Bernanke said at a press conference after the conclusion of a two-day meeting of the Federal Open Market Committee. The Fed currently buys $85 billion in Treasury and mortgage debt each month.

“Inflation remains at a low pace and the easing may end, so there are no real solid reasons to back gold,” Edward Lashinski, the Chicago-based director of global strategy for futures trading at RBC Capital Markets LLC, said in a telephone interview. The Fed’s plan to scale back asset purchases “is making gold investors nervous,” he said.

Gold futures for August delivery fell 1.2 percent to $1,350.20 an ounce in electronic trading at 4:30 p.m. on the Comex in New York. Earlier, the price touched $1,348.30, the lowest for a most-active contract since May 20. The metal settled up 0.5 percent at $1,374 at 1:44 p.m.

The dollar jumped as much as 1.1 percent against a basket of major currencies.

Gold slumped 18 percent this year through today’s settlement, following 12 straight annual gains. Some investors lost faith in the commodity as a store of value amid a recovery in the U.S. economy, a rally in equities and low inflation. On April 12, gold entered a bear market, and in the following session, the price plunged 9.3 percent, the most in 33 years.

Equity Rally

The Standard & Poor’s 500 Index of equities rose to a record on May 22. Through yesterday, the gauge climbed 16 percent this year. This month, U.S. data showed the inflation rate was the lowest in at least five decades.

Holdings in the SPDR Gold Fund, the world’s biggest exchange-traded product backed by the metal, have tumbled 26 percent this year to the lowest since February 2009.

The slump has erased $29 billion from the value of the fund. Global ETP holdings in the metal have declined 20 percent this year.

Gold jumped 55 percent since the end of 2008, reaching an all-time high of $1,923.70 in September 2011, as the Fed cut borrowing costs to a record to bolster the economy.

The benchmark 10-year yield on Treasuries reached 2.29 percent on June 11, the highest in 14 months, Bloomberg Bond Trader prices show. In July, the yield was as low as 1.38 percent.

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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