Companies exploring for gold, silver and other precious metals took a beating this week, dragged down by a sell off that occurred on Wednesday and by a signal from the US Federal Reserve that quantitative easing could let up by summer.
The week started off on even footing for gold, with traders returning from the Easter long weekend to find fresh safe-haven demand, the result of North Korea’s threats that it will attack South Korea and the United States. The metal closed up $2 an ounce on Monday to reach the psychologically important $1,600 level.
Gold slipped modestly on Tuesday, to $1,597, but on Wednesday, the bears were out in full force after John Williams, president of the Federal Reserve Bank of San Francisco and a prominent dove on the Federal Open Market Committee, said the Fed’s quantitative easing program could wind down by summer. The program injects $85 billion a month in Treasury and mortgage bonds into the US economy.
“Assuming my economic forecast holds true, I expect we will meet the test for substantial improvement in the outlook for the labor market by this summer. If that happens we could start tapering our purchases then,” MarketWatch quoted Williams as saying.
The market reaction to the news was swift and brutal for gold. In midday trading, the metal plunged as low as $1,539 an ounce before ending the day at $1,553, a 10-month low. Silver was also hit hard, with May COMEX silver slipping below the $27-an-ounce mark to end at $26.48.