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Gold Prices Settle Lower

Tuesday, January 8, 2013 4:06 AM
Gold prices fell on Monday, posting a loss for a third straight trading session, as bullion investors shied away from increasing inflation-hedge bets after the minutes from Federal Reserve’s most recent monetary policy meeting, released last week, showed many officials were concerned about ongoing monetary easing, putting serious doubts over whether the central bank will continue its asset purchase program in 2013. Gold futures for February delivery edged lower $2.60 an ounce or 0.2 percent to settle at $1,646.30 while spot gold fell 0.6 percent to trade near $1,627 an ounce. The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.65% lower at $159.43. A data provided by Reuters showed trading volume was 20 percent below its 30-day-moving-average. Gold prices have been under pressure since last Friday after the Federal Reserve released minutes from its latest policy rate meeting held on Dec.11-12. The minutes showed that two top policymakers were in favor of halting the ongoing quantitative easing measures in the backdrop of improving economic environment—which has been the key factor behind gold’s bull runs since 2008. After the financial crisis the Federal Reserve has constantly kept benchmark interest rates at record near zero levels even as it offered other economic stimulating measures such as mortgage-backed asset purchase and bond purchase programs. Thanks to extremely accommodating monetary policy adopted by the Federal Reserve in 2012, gold prices nearly touched $1,800 an ounce in first week of October.  The Fed first launched its $40 billion worth monthly mortgaged-backed-asset purchase program and later in December it announced a $45 billion worth monthly bond purchase program (As Operation Twist ended in the same month). On both occasions the Federal Reserve said that economic stimulating measures will continue until the economy showed drastic improvement and unemployment rate drops to 6.5%. Although, a latest data release from the Labor Department showed that unemployment level is still at 7.8%, investors are cautious after officials from the Fed raised doubt over large-scale asset buying program from financial markets. “Any time there is any concern about Fed tightening, those nervous gold investors leave the market very quickly,” commented James Dailey, portfolio manager of TEAM Financial Asset Management while speaking to Thomson Reuters. Earlier on Friday, the metal slumped to its 4-1/2 month low level, hitting $1,625 an ounce mark before recovering some of its lost ground toward the end of the session, thanks to weaker than expected nonfarm payrolls report which arrested the downward trend. Dailey, however, added that economic indicators aren’t still strong enough to press the Fed to shelve its quantitative easing program.  According to Reuters, several analysts feel that prices of gold could bounce back if economic data shows signs of slowing down. In a note to investors, strategists at TD Bank said, “It's difficult to make assumptions ... whether the FOMC minutes represent a material change of monetary policy from the Fed, and we are well aware that an off-the-cuff remark by Fed Chairman Bernanke could reverse the markets in an instant.” Nonetheless, some metal strategists like in Jason Rotman keep a bearish outlook on gold. In a note to investors Rotman, president of Lido Isle Advisors in Newport Beach, California, said, “Gold’s likely to trade in a short-term range between $1,630 support and $1,690 resistance. We have a bearish-neutral outlook at this point,” adding that Fed’s hint at scaling down or ending the QE in the current year will be “bearish for gold market.” In some other precious metal markets, silver futures for March delivery gained 14 cents an ounce or 0.5 percent to close at $30.08. platinum futures fell $2.20 an ounce or 0.1 percent to settle at $$1,556.30 an ounce while palladium futures plunged $18.50 an ounce or 2.7 percent to close at $670 an ounce.
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