Gold slumps $77.10 as Bernanke dashes stimulus hopes
Ben Bernanke’s words on Wednesday carried a great deal of weight in the commodity markets – so much so that they squashed the prices of gold and silver.
The Federal Reserve chairman told Congress that the U.S. economy was likely headed for modest growth this year, adding that the current increase in oil and gas prices likely would reverse before sparking long-term inflation.
The presentation signaled to many investors that the Fed embarking on another round of quantitative easing is an increasingly improbable scenario. The bond-buying practice serves as a stimulus measure, leading to what investors often call “easy” or “loose money.”
Spot gold, which usually benefits from such policies, tanked in response, plummeting $77.10, or 4.3%, to $1,709.90 an ounce. Silver for March delivery took a similar tumble, sliding nearly $2.56, or nearly 6.9%, to $34.58 an ounce.
“When Bernanke didn’t mention the possibility of another round of monetization, that was enough to take the fizz out of everything,” said independent commodities analyst Dennis Gartman. “Before today, gold was looking quite strong, but today it just gave up the ghost.”
The sell-off was likely helped along by the precious metal’s failure in recent weeks to breach the symbolic $1,800-an-ounce threshold, said James Steel, a commodities analyst for HSBC. The emerging market for the safe haven has also been quiet.
“There’s usually a bit of a floor under the market, but there wasn’t this time,” Steel said.
Still, gold is up overall this year after wrapping up its 11th straight year of gains last year. While analysts expect lingering weakness over the next few days, some doubt that gold’s plunge will outlast Wednesday.
“The market might take a few days to consolidate,” Steel said. “But I don’t think the rally’s been reversed.”
RELATED:
Bernanke projects modest economic growth this year
Commodity prices were hit hard in second half of year
Gold prices rush to new record on global economy worries
