NEW YORK Gold dropped nearly 2 percent on Thursday after U.S. Federal Reserve Chairman Ben Bernanke offered few hints of further monetary stimulus, prompting investors to unwind bullish bets on expected easing after last week's dismal U.S. payrolls report.
Bullion was hit particularly hard compared to equities and other commodities, as it has been heavily used by institutional investors to hedge against the economic uncertainties brought by monetary easing. The metal has about halved its gains built on last Friday's jobs data.
Gold has so far this year performed as a fickle indicator to stimulus programs by central banks. It was up 15 percent earlier this year after the Fed said it would keep interest rates near zero for the next several years, but it had only wiped out all yearly gains on disappointment about a lack of monetary easing.
"The market was obviously looking for more conviction, but Bernanke is not willing to commit one way or another," said Anthony Neglia, president of Tower Trading and a COMEX gold options floor trader.
"We hit a major wall not being able to get above $1,650 earlier. If we break below $1,580 convincingly, we are heading $1,500 bound," Neglia said.
Spot gold was down 1.7 percent at $1,589.30 an ounce by 2:38 p.m. EDT (1838 GMT), off an earlier high of $1,628.80 an ounce.
U.S. COMEX gold futures for August delivery settled down $46.20 an ounce to $1,588. Trading volume was around 20 percent above its 30-day average, preliminary Reuters data showed, easily the higher turnover for this week.
Gold retreated $40 from its early highs after Bernanke said the U.S. central bank was ready to shield the economy if financial troubles mount but offered few hints that further monetary stimulus was imminent. Earlier, gold rose after China surprised markets with its first interest rate cut since the 2008 global financial crisis.
GOLD MINING STOCKS BEARISH
On the option front, some investors tried to limit further downside risks by trading July $1,600 put options earlier in the session, but volatility remained subdued despite the futures' sell-off.
Precious metals mining stocks as a group measured by the Gold & Silver index .XAU, which was down 10 percent for the year, could face renewed selling pressure after it has jumped around 15 percent in the last three weeks.
A large put spread in the July expiry of the Market Vectors Gold Miners exchange-traded fund suggests one investor may be positioning for the price of the ETF to reverse recent gains and potentially slump to a fresh multi-year low by expiration, said Interactive Brokers Group options analyst Caitlin Duffy.
Technical selling also accelerated losses as the metal attempted to extend gains into key resistance in the $1,650 area in the last several sessions but had failed each time.
Silver was down 2.7 percent at $28.58 an ounce, wiping out most of its previous session's gains based on improved economic sentiment and Wall Street and industrial metals' rallies. .N <MET/L>
Spot platinum fell 1.4 percent to $1,436.24 an ounce, while spot palladium inched down 0.3 percent to $621.22 an ounce. 2:38 PM EDT LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL US Gold AUG 1588.00 -46.20 -2.8 1579.40 1630.70 232,969 US Silver JUL 28.529 -0.959 -3.3 28.360 29.675 69,510 US Plat JUL 1440.90 -28.30 -1.9 1436.00 1471.20 6,996 US Pall SEP 625.75 -7.05 -1.1 620.00 632.80 2,402
Gold 1589.30 -28.13 -1.7 1578.70 1628.80 Silver 28.580 -0.790 -2.7 28.430 29.690 Platinum 1436.24 -20.36 -1.4 1439.85 1466.99 Palladium 621.22 -2.01 -0.3 622.66 629.75
TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG US Gold 243,834 209,378 195,756 23.56 -0.15 US Silver 87,400 50,260 52,906 33.2 -0.23 US Platinum 7,651 7,841 7,961 18 0.00 US Palladium 2,460 5,795 4,573
(Additional reporting by Jan Harvey in London; Editing by Marguerita Choy and Gunna Dickson)