Gold and silver futures closed at their lowest levels in more than 2 ½ years Thursday, a day after Federal Reserve Chairman Ben Bernanke said the central bank could move as early as this year to slow the flow of monetary stimulus to the economy.
Although Bernanke emphasized that the Fed’s moves would be dictated by economic data, “there seems to be a pretty broad expectation that [quantitative easing] is coming to an end in the next year or so,” said Peter A. Grant, chief market analyst at USAGOLD.
Global markets sink on Fed fears
Markets in Europe and Asia were broadly lower following Wednesday‘s selloff in the U.S.
Gold for August delivery GCQ3 +0.29% dropped $87.80, or more than 6%, to end Nymex floor trade at $1,286.20 an ounce — the lowest closing level since September 2010, according to FactSet data.
It was similar story for silver futures, with the July contract SIN3 -0.37% falling $1.80 to finish at $19.82 an ounce
Analysts described the carnage as a “bloodbath,” with gold and other metals tumbling alongside other commodities in a broad selloff that swept across asset classes.
GLD 123.60, -6.99, -5.35%
Gold is seen as particularly vulnerable to a withdrawal of Fed liquidity, having built much of its previous rally on ideas aggressive monetary easing threatened to debase the dollar and other currencies and stoke inflationary pressures.
With bond yields rising rapidly, analysts said gold and other commodities which offer no yield are poised to suffer since they offer no yield.
After slightly trimming initial losses, gold slipped back below $1,300 an ounce after data showed existing U.S. home sales rose 4.2% to an annual rate of 5.18 million in May, topping expectations for a pace of around 5 million and the Philadelphia Fed’s manufacturing index came in stronger than expected.
Earlier, data showed U.S. weekly jobless claims rose more than expected.
The U.S. dollar DXY -0.16% shot up in the wake of Bernanke’s comments, a negative development for gold as a stronger dollar can make gold and other dollar-denominated commodities more expensive to those using other currencies.
Grant said a weak China purchasing managers’ index reading in the wake of the Fed comments contributed to a “perfect storm” that’s rocked various asset classes. And while gold is sometimes treated as a haven, the yellow metal is suffering the same fate as other commodities as investors pile into the greenback.
Gold suffers a heavy blow as the Federal Reserve signals it may reduce its bond buying later this year.
Futures prices initially turned lower Wednesday after Bernanke said the central bank’s purchases of government bonds may be scaled back as early as this year, if economic activity improves in line with its forecasts.
The central bank is currently buying $85 billion a month of bonds in an effort to encourage economic growth. The central bank’s bond-buying program has helped bolster U.S. equity prices, and aggressive monetary easing in recent years has been credited for helping gold prices rally.