Gold Sinks to 10-month Low on Bearish Fed Signal

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.

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Gold settles at lowest level in nearly four weeks

Gold futures fell sharply Tuesday to end at their lowest level in nearly four weeks, as strength in the dollar and a rally in U.S. equities lured investors away from the precious metal.

“Risk appetite is continuing to pressurize gold,” said Mark O’Byrne, executive director at bullion dealer GoldCore, but the metal’s fundamentals remain sound and “smart money will continue to buy on the dip.”

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Gold for June delivery GCM3 -0.29%  dropped $25, or 1.6%, to settle at $1,575.90 an ounce. That was the lowest settlement for a most-active contract since March 7, FactSet data show.

It was just a day earlier that gold reclaimed the $1,600 an-ounce level, rising $5.20, or 0.3%, to settle at $1,617.90 an ounce, feeding off weaker-than-expected U.S. manufacturing data.

On Tuesday, investors grappled with a clutch of downbeat European data, including figures showing a deeper factory downturn in March, which drove the euro EURUSD -0.02%  south against the dollar. The greenback also climbed as the Japanese yen USDJPY +0.08%  weakened ahead of a Bank of Japan policy meeting.

Whereas a weaker dollar provides support for prices of dollar-denominated commodities such as gold and oil, a stronger dollar works in the opposite direction. The ICE dollar index DXY +0.04% traded at 82.877, up from 82.744 late Monday in North American trading.

The recent tight trading range and the Easter holiday likely moved gold prices closer to the levels traders have set for automatic sell orders, according to Gene Arensberg, editor of the Got Gold Report, which provides technical analysis of the gold and silver markets.

U.S. equities rallied on positive news about Medicare reimbursement rates, a rise in factory orders for February and upbeat figures on March auto sales. That helped draw interest away from gold.

In a report Tuesday, analysts at Société Générale reiterated their bearish stance on gold prices. Their base-case 2013 forecast is for $1,500 an ounce on average, with a drop to $1,375 an ounce by the year’s end.

Among the major Comex metals, silver, which is known for its volatility, led the charge lower. May silver futures SIK3 -0.27%  sank 70 cents or 2.5%, to end at $27.25 an ounce, the lowest level for a most-active contract since early August.

Silver hit a “very key” $27.50 price point — likely an indication of the “bearish environment” for the metal, analysts at Lido Isle Advisors wrote in a note Tuesday, adding that the next key target lower is $25.

“It seems that as the U.S. equity markets rise, more investors are liquidating their precious-metals holdings and perhaps shifting into the ‘great rotation’ into equities,” they said.

May copper futures HGK3 -0.58% finished up less than half a cent, or 0.1%, at $3.38 a pound.

July platinum PLN3 -0.29%  tumbled $24.60, or 1.5%, to $1,574.20 an ounce, and June palladium PAM3 -0.66%  fell $14.55, or 1.9%, to $769.40 an ounce. Prices pulled back from gains seen on Monday, when platinum and palladium climbed 1.5% and 2%, respectively.


PRECIOUS-Gold off 4-week low, firm equities likely to weigh

old bounced on Wednesday
after falling to its weakest in nearly four weeks in the
previous session, but gains look set to be capped by firm
equities and renewed optimism over the U.S. economy.

    * Gold added $1.17 to $1,576.41 an ounce by 0030 GMT.
Gold fell to $1,573.39 on Tuesday, its lowest since March 8, as
investors shifted to equities after the benchmark S&P 500 index
 climbed to within striking distance of an all-time
intraday high.
    * U.S. gold for June was steady at $1,576.80 an
    * Dealers were awaiting the release of the U.S. nonfarm
payrolls report on Friday to confirm market views the Federal
Reserve wants to maintain its extremely accommodative monetary
policy, which has underpinned investor sentiment and sharpened
risk appetite. 
    * U.S. inflation is low and expectations remain well
contained, allowing the Federal Reserve to keep up aggressive
monetary policy measures to spur growth, Charles Evans,
president of the Federal Reserve Bank of Chicago, said on
     * For the top stories on metals and other news, click
, or 

    * Japan's Nikkei share average rose on Wednesday, as gains
in Wall Street helped the market recover from losses of more
than 3 percent in the past two days, while the euro remained
pressured by concerns about bailout consequences in Cyprus and
weak euro zone economies.   
    * U.S. crude futures slipped in early Asian trading on
Tuesday after data showed an unexpected slowdown in U.S.
manufacturing and on expectations that oil inventories would
continue to rise in the world's largest energy consumer. 

    0900 Euro zone Flash inflation 
    1215 U.S. ADP employment report 
    1400 U.S. ISM non-manufacturing index 


  Precious metals prices 0036 GMT
  Metal             Last    Change  Pct chg  YTD pct chg    Volume
  Spot Gold        1576.41    1.17   +0.07     -5.86
  Spot Silver        27.21    0.01   +0.04    -10.14
  Spot Platinum    1568.75   -0.75   -0.05      2.20
  Spot Palladium    766.22    2.22   +0.29     10.73
  COMEX GOLD JUN3  1576.80    0.90   +0.06     -5.91         2803
  COMEX SILVER MAY3  27.18   -0.07   -0.27    -10.11         1052
  Euro/Dollar       1.2813
  Dollar/Yen         93.52

  COMEX gold and silver contracts show the most active months