Futures Market News
Gold futures drop amid Fed reporting strengthening U.S. economy
Mar 14, 2012 10:26 AM
The price of gold futures fell to their lowest value in two months on Wednesday, pulled down by the strengthened U.S. dollar after uplifting remarks made by the U.S. Federal Reserve, according to Reuters.
But, despite the sharp losses on Wednesday, the yellowish metal is likely to achieve a twelfth consecutive year of annual gains in 2012, according to Bloomberg. Such is the projection of a poll of 14 respondents during the Bloomberg Link Precious Metals Conference on Tuesday in New York.
But on Wednesday, bullion slumped for a second consecutive session amid the fallout from Benjamin Bernanke and peers stating the globe's biggest economic system is gradually strengthening, according to The Wall Street Journal.
"The statement had clearly a positive tone regarding the economy, triggering another heavy round of sales of gold, which rapidly fell onto the defensive," states a note penned by precious metals analyst James Steel with HSBC Securities, according to The Wall Street Journal.
At 10:54 a.m. on Wednesday, gold futures fell 2.62 percent, a $44.40 drop to $1,649.80 per troy ounce.
One day after the policy-making arm of the U.S. Federal Reserve commented on the expanding economy but left open the possibility of additional monetary stimulus, losses to the precious metal ran as high as 3 percent. The likelihood of a third round of quantitative easing anytime soon is slim but not beyond the realm of possibility in the future.
The Fed's purchase of debt typically drags down the value of the world's reserve currency and, in turn, the yellowish metal gains strength since the two perform the inverse of one another. Thus news about the economy hosting the world's reserve currency growing stronger proved to be detrimental to the price of gold.
In the aftermath of the second round of monetary easing, the price of gold futures gained, The Wall Street Journal reports.
Reuters indicates the uplifting economic news includes a report noting February's retail sales indicated the top advance in 150 days.
At one point, the price of gold scraped its lowest value since January 16 when it checked in at $1,640.30 per troy ounce.
"We saw the 10-year (U.S.) government bond yield breaking out of the holding pattern it's been trading in for the last five or six months. That's one of the precursors to a change in rate sentiment," senior manager Ole Hansen with Saxo Bank told Reuters. "Knowing how dovish the Fed - especially Bernanke - is, for him to say we're seeing growth is surprising. So removal of quantitative easing and a higher rates forecast is not good for gold in the near term."
The U.S. dollar advanced to its highest value in 11 months against the Japanese yen as yields rose on U.S. government bonds.
Despite the losses, some analysts endorsed the purchase of gold as a good value while noting some factors are supportive of the price of the yellowish metal.
"As far as real interest rates are concerned, we believe that they will remain low for some time to come. The futures market agrees. Even the Fed has indicated that they will keep rates very low for some time," analyst Walter de Wet with Standard Bank told Reuters. "This should keep real interest rates in negative territory. At the same time, economic conditions may indicate that the Fed funds rate is too low. Such a mismatch has in the past proved quite bullish for gold."
On December 31 of last year, gold futures checked in at $1,566.80, according to Bloomberg. Pollsters at the New York conference project the precious metal will rise as high as $1,897 per troy ounce by the end of this year.
The record price of gold is $1,923.70 per troy ounce as established on September 7 of last year.
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