Gold slumps on fears Fed will signal taper

NEW YORK (MarketWatch) — Gold futures ended lower Tuesday after dropping to their lowest level in nearly four weeks as traders focused on the possibility the U.S. Federal Reserve will signal that it’s prepared to slow the flow of monetary stimulus.

Gold for August delivery GCQ3 -0.14%  dropped $16.20, or 1.2%, to close at $1,366.90 an ounce in Nymex floor trading as Fed officials began a two-day monetary-policy meeting. During the session, gold traded as low as $1,360.20, the lowest level for a most-active futures contract since May 23, according to FactSet.

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Gold falls ahead of Fed meeting.

“Short-term gold investors are awaiting the results of the Fed meeting, fearing more noises that [quantitative easing] will be curtailed,” said Edmund Moy, chief strategist at gold-backed IRA provider Morgan Gold.

“However, it’s likely that Fed will continue to signal flexibility and concern over the size of QE (as a message to the president and Congress to get the fiscal house in order) but there will be no changes in the short term because their triggers have not been met,” Moy said, in emailed comments.

Economic data on Tuesday offered a mixed bag for Fed experts. Housing starts rebounded by a stronger-than-expected 6.8% in May, but consumer price inflation was more subdued than expected, posting a monthly rise of 0.1%.

Investors are closely watching for any comments by the Fed about the future of its program of purchasing $85 billion a month in bonds, which is intended to stoke economic growth. The Fed will conclude its two-day meeting Wednesday and Fed Chairman Ben Bernanke will hold a news conference. See: Here’s proof that Bernanke’s news conferences impact the market.

But some analysts say there may not be much for the Fed to latch on to just yet.

“Recent data gives little insight into, or guidance on, the Fed’s short-term monetary stance while instead offering rich ground for a policy debate. This is likely to be reflected in minutes from the meeting, while Ben Bernanke’s statement late on Wednesday is hardly likely to turn outright hawkish right away, given subdued [CPI readings]. We expect the Fed chairman to be at ease with his ongoing accommodative stance,” said Andrey Kryuchenkov, metals analyst at VTB Capital.

Gold prices in recent years have been buoyed by the Fed’s aggressive monetary-stimulus policies.

After the close of floor trading of gold Monday, a report from the Financial Times said Bernanke is likely to signal the central bank is preparing to reduce bond purchases. Bernanke is due to hold a news conference on Wednesday after the conclusion of the Fed meeting.

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Why you need not fear the Fed

Hype continues to mount ahead of next week’s Fed meeting, with all the fuss centered around when the Fed will start tapering its bond-buying program. But there are opinions that say everyone just needs to chill out. Photo: AP.

While most analysts don’t expect the Fed to make a Wednesday announcement about tapering asset purchases, speculation in the markets about possible tapering began to heat up when some Fed officials last month started to voice support for reducing asset purchases.

Last week, a report in The Wall Street Journal indicated Bernanke will reassure investors that an eventual tapering of the Fed’s bond-buying program won’t be accompanied by any immediate hike in interest rates.

Elsewhere in the metals complex Tuesday, July silver SIN3 -0.72%  fell 8 cents to end at $21.68 an ounce. Copper for July delivery HGN3 +0.05%  lost 5 cents, or 1.3%, to $3.15 a pound.

September palladium PAU3 -0.21%   slumped $9.50, or 1.3%, to $708.35 an ounce, while July platinum PLN3 -0.54%  bucked the weaker tone to rise $5.30, closing at $1,440.10 an ounce.

William L. Watts is MarketWatch's senior markets writer, based in New York. Follow him on Twitter @wlwatts. Carla Mozee is a reporter for MarketWatch, based in Los Angeles. Follow her on Twitter @MWMozee.

source: http://www.marketwatch.com/story/gold-futures-dip-as-fed-tapering-questions-linger-2013-06-18