Stock Market Watch

Gold Prices Tumble

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Gold prices fell by 3 percent on Wednesday—the biggest plunge in 2-1/2 months as dollar gained sharply after Federal Reserve’s chairman failure to offer a hint on further quantitative easing, even as job market improved, prompting funds to heavily unwind bullish bets on bullion which are dominated by dollar and boosting dollars.

Analysts say that although Bernanke stopped short of saying the improved job market meant a better economy ahead;   the silence over the quantitative easing issue was enough to send gold futures sharply lower.


The metal plunged as much as $80 from its session high, as losses began to soar when the dollar accelerated gains after Bernanke said the decline in U.S. unemployment rate has surprised economists.

While the Spot gold was shedding 4.88 percent, closing at $1,696.89 an ounce, passing its earlier two-week low of $1,707.04, U.S. gold futures for April delivery plunged 5.5 percent to settle at $1,711.30 an ounce.

Speaking to Reuters, Steve Scacalossi, director of global precious metals at TD Securities said “(Bernanke’s) statement that employment is recovering at a better-than-expected rate implies that if quantitative easing is coming, it won’t be for a while”.

Scacalossi believes that Bernanke comments hit the gold prices hard because investors had positioned very heavy bets on the metal following  European Central Bank’s offering of low-interest three-year loans as the ECB bought more time to sort out the debt crisis.

Richard Hastings, a macro strategist at Global Hunter Securities believes that “ it is possible that the Bernanke comments are designed to take out some of the inflation in the industrial and commodity side of the markets right now, since the Fed does not want inflation to creep up and threaten its ultra-low rate policy at this time.”

On Wednesday, although trading volume started out quietly, it picked strong momentum after 10 a.m. the trading also included 30,000 lots of the April contract traded in a five-minute span between 10:50 a.m. and 10:55 am EST. According to the data provided by the Reuters, total turnover was about 240,000 lots so far, arguably one of the busiest days since September 2011.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 5.30% lower at $164.29, the Market Vectors ETF Trust (NYSE: GDX) ended the day 3.45% lower at $55.35, and the iShares Gold Trust (ETF) (NYSE: IAU) ended the day 5.34% lower at $16.48.

Jonathan Jossen, gold option floor trader at COMEX said that after the heavy sell off pressure was witnessed, funds were heavy buyers of December $1,500 put options as some looked to profit even as others tried to shield further downside risks in their futures.

George Nickas, precious metals broker at INTL FCStone, said “It was a quiet, thin market which got overwhelmed with an influx of orders, creating this aberration.” Nickas also added that silver too saw a sharp u-turn, after gaining almost 4% on Tuesday, but expects the stability to return soon.

While Spot silver fell 5.2 percent, closing at $34.98 an ounce, Spot platinum also felt the heat as it dropped 2.23 percent to $1675.99.

The iShares Silver Trust (ETF) (NYSE: SLV) ended the day 6.36% lower at $33.55, and the ProShares Ultra Silver (ETF) (NYSE: AGQ) ended the day 13.07% lower at $62.88.

The ProShares UltraShort Silver (ETF) (NYSE: ZSL), which takes a short position on silver, ended the day 12.02% higher at $9.41.

Tom Essaye, editor of the 7:00’s Report, a daily commentary on equity and commodity markets and the economy, commented “The market’s reaction to Bernanke’s “less than dovish” testimony “shows how much gold is linked to inflation expectations/easy money from global central banks”.

 

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edliston
Post Written By: Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.


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Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing.

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