Gold and Silver Prices Nosedive

Gold prices plunged to a 3-year low level during Asian trading hours on Wednesday as falling demand for inflation-hedge bets and weakness in the physical side demand in Asia, pushed the metal below its key support level, triggering technical sell-off. Silver prices also tumbled in early trading on Wednesday.

At last check, gold futures for August delivery tumbled 3.75% to $1,227.30 an ounce while spot gold plunged 3.58% to $1.231.00 an ounce.

Silver futures were last down 5.10% to $18.53 an ounce.

Bullion has now shed more than 10% or $140 an ounce since the beginning of the last week as investors fearing early winding down of the Federal Reserve’s bond purchase program, are dumping inflation-hedge bets in hordes.

The Federal Reserve’s extremely accommodating monetary policy since the credit crises of 2008/09 has been the key factor behind gold bull runs until 2012.

However, with the Federal Reserve signaling possible tapering of the multi-billion bond purchase program by the year end, and inflationary pressure almost nonexistent, investors are cutting positions in gold—which is traditionally regarded as a hedge against inflation.

Earlier on Tuesday, a barrage of better-than-expected U.S. economic data releases also stoked speculation that the Fed might soon start decelerating the pace of asset purchases.

Commenting on sharp fall in gold prices, Victor Thianpiriya, commodities analyst at Australia and New Zealand Banking Group, said, “We’ve pushed past the $1,270 level seen last week. That’s a key technical level so we are going through a whole bunch of stop losses, according to Reuters.

Meanwhile, holdings of the SPDR Gold (ETF) (NYSE: GLD) continued to dwindle on Tuesday. A data provided by Reuters showed that holdings fell another 16.23 tons to 969.50 tons, which is the fund’s lowest level since February 2009.

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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.