Gold Price Down Over 1 Percent on Fed Posted by James Randolph on June 21, 2012
Gold was in line for its biggest one-day loss in two weeks of trading on Thursday following disappointment from the Federal Reserve’s decision to refrain from the outright purchase of securities in a new quantitative easing program.
Following the policy meeting of the Federal Open Markets Committee, which ended on Wednesday, the Fed announced it would extend Operation Twist, an existing program that lowers the cost of long-term borrowing. Operation Twist was previously scheduled to end this month. Some market participants anticipated a new round of quantitative easing to be announced following the two-day meeting of the FOMC.
Traders and investors interpret the decision to not initiate any new stimulus programs could mean the Fed will begin raising rates sooner than anticipated.
The spot price of gold is down 1.5 percent at $1,582.09 in intraday trading while US gold futures for August delivery were down $33.00, at $1,582.80 per ounce.
“Currently, we’re seeing a bit of follow-through from disappointed investors but believe we should be finding support pretty soon,” Saxo Bank vice president Ole Hansen said.
“Commodities, especially energy, are not having a good time, with the GSCI (index) approaching bear market territory. This is pulling the whole sector lower at the moment as redemption and general nervousness about the near-term prospect is causing some selling, but gold and agriculture stand out, I would say.”
Gold has been as high as $1,640.50 per troy ounce this month on hopes the Fed would initiate another round of quantitative easing, particularly after a series of disappointing economic reports.
Market prices began to adjust prior to the Fed press release as speculation mounted that a full easing was not on the agenda.
Silver underperformed, sliding down 2.2 percent to $27.48 per troy ounce.The ease in silver brought the gold/silver ratio to more than 57 on Thursday, close to the year’s high. The ratio measures the number of silver ounces needed to buy an ounce of gold.
“Given the low price especially May, it may be possible that many of the producers preferred to hang on to as much ‘discretionary’ metal as possible until the price improves somewhat,” said Standard Bank analyst Walter de Wet.