Reports in the Wall Street Journal and elsewhere suggested that the size of the quantitative easing package put forth by the Federal Reserve may not meet investors' expectations. Their disappointment put pressure on precious metals futures, where investors had been counting on a large monetary stimulus and subsequent inflation to drive up the price of hard assets.
"If the perception is changing more to a gradualist approach than shock-and-awe, then that may undermine the precious metals near term," Jim Steel, senior vice president and metals analyst with HSBC Holdings in New York, told the Wall Street Journal.
Gold for delivery in two months slipped $16 to $1,322.60 per troy ounce Wednesday. December silver, meanwhile, dropped 1.8 percent to $23.404 per troy ounce.
If the Federal Reserve's quantitative easing disappoints the hyped-up expectations of traders, the central bank might find itself in the awkward position of starting a market retreat when it announces a new debt-buying program.
In fact, there isn't any guarantee that the Fed will announce so-called "QE2" at all – but by constantly teasing at the possibility, it's painted itself into a corner. A small asset-buying program will disappoint, but if it fails to materialize at all, the markets could retrench strongly.
Precious metals investors would lose out, while dollar futures would almost certainly surge.
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