PRECIOUS-Gold down 5 pct in global rout on U.S. Fed stimulus fears

Thu Jun 20, 2013 5:46pm EDT

* Rising U.S. bond yields hit gold's appeal
    * Scaled back Fed bond buys possible in 2013
    * SPDR Gold exchange-traded fund holdings at 4-year low

 (Adds details on China's rates, technicals; updates prices)
    By Frank Tang and Jan Harvey
    NEW YORK/LONDON, June 20 (Reuters) - Gold plunged over 5
percent to its lowest in three years on Thursday, leading a
global market rout one day after the U.S. Federal Reserve gave
its most explicit signal yet it plans to wind down the era of
easy money.
    Losses snowballed throughout the day, triggering technical
selling below key support at $1,320 an ounce and culminating in
one of bullion's biggest routs since the 2008 economic crisis.
Technical analysts said prices might have to fall another 6
percent before finding new support at $1,200.
    Signs of financial stress in China added to the pressure,
with China's shortest-term rates hitting record highs as the
central bank ignored market pressure to inject funds into the
market, despite new evidence that the world's second-largest
economy is slowing. 
    But the primary impetus was Fed chief Ben Bernanke's remarks
on a possible scale back of the stimulus program later this
year, which spurred a surge in benchmark U.S. bond yields that
drove gold deeper into bear market territory. Silver plunged
nearly 8 percent. U.S. stocks fell 2.5 percent and oil tumbled 4
percent.
    "People had been going into gold, commodities and equities
because the bond yields were so low. Now, with bond yield rising
we are beginning to see liquidation out of gold and into cash,"
said Jeffrey Sica, chief investment officer at Sica Wealth which
oversees over $1 billion in clients' assets.
    Bullion, a non-yield bearing asset and a traditional
inflation hedge, tends to be particularly sensitive to interest
rate changes compared with other riskier assets such as
equities.
    Spot gold was down 5.2 percent at $1,280.54 an ounce
by 4:28 p.m. EDT (2028 GMT), having hit $1,276.19, which marked
its lowest level since Sept. 21, 2010.
    The Thomson-Reuters/Jefferies CRB commodities index
 dropped 3 percent, while benchmark U.S. 10-year bond
yields rose to the highest levels since August 2011, with few
signs of when the trend will end.   
    U.S. Comex gold futures for August delivery settled
down $87.80 an ounce at $1,286.20, with trading volume already
surpassing 360,000 lots, on what might be the highest daily
turnover in nearly a month, preliminary Reuters data showed.
    Gold is now more than 30 percent below its record high of
$1,920.30 an ounce, set in September 2011.
    
    CHART SHOWS MORE LOSSES POSSIBLE
    Analysts said gold is on weak technical ground, with few
levels to support prices until they go below $1,200 an ounce,
after its sharp pullback to a near three-year low on Thursday.
    GRAPHIC: link.reuters.com/jar98t
    Spot gold's 14-day relative strength index dropped to 25,
below 30, which marks the area traditionally seen as over-sold
territory.
    Some analysts said, however, that gold could benefit should
the U.S. economy worsen or not improve fast enough, prompting
the Fed to suspend plans to taper monetary stimulus.
    "Weaker data in the coming months could push back unwinding,
lower yields and thereby support gold," said James Steel, chief
precious metals analyst at HSBC.
    Signs of the end of the Fed's mortgage-bond buybacks known
as quantitative easing, the single-most important driver of
gold, have helped push prices down more than 20 percent this
year after 12 straight years of gains. 
    Heavy selling by institutional investors also showed no
signs of abating. Bullion holdings in the world's biggest gold
exchange-traded fund SPDR Gold Trust fell 0.2 percent to
their lowest in four years. 
    Silver was the biggest decliner among the precious
metals, sliding nearly 8 percent to $19.64 an ounce, having hit
a low of $19.58 an ounce, its weakest since September 2010. 
    Platinum dropped 3.6 percent to $1,359.50 an ounce,
while spot palladium slid 4.7 percent to $661.25 an
ounce.
    
 4:28 PM EDT     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold AUG   1286.20 -87.80  -6.4  1275.40 1351.20  347,943
 US Silver JUL  19.823 -1.800  -8.3   19.535  21.280  116,037
 US Plat JUL   1363.80 -60.10  -4.2  1355.20 1419.20   23,244
 US Pall SEP    665.10 -31.30  -4.5   660.65  695.50    6,757
                                                               
 Gold          1280.54 -70.15  -5.2  1277.03 1351.06         
 Silver         19.640 -1.670  -7.8   19.580  21.330
 Platinum      1359.50 -50.50  -3.6  1359.50 1416.74
 Palladium      661.25 -32.75  -4.7   664.25  693.00
                                                               
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        367,191   210,063   180,458     26.09    4.36
 US Silver      163,325    55,038    56,645      32.3    1.07
 US Platinum     28,563    13,464    11,737      21.9   -0.01
 US Palladium     6,826     6,451     5,566                  
                                                               
 
 (Additional reporting by Veronica Brown in London.; Editing by
Jane Baird and Bob Burgdorfer and Andre Grenon)
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Comments (1)
DDearborn wrote:
Hmmm

What a joke. The FED announces is will probably end QE sometime later this year. How many times have they said this before and it turned out to be a lie? So the instant, the instant the announcement is made that they are probably going to end this sometime in the future gold drops 6% and nobody things that the gold market is being manipulated.

Funny thing about gold prices. Physical gold and silver are buying purchased around the gold at all time record amounts. Most of the buying is well above the “official” paper spot price. Thousands of tons are being bought by State banks. And yet in the mist of all that real demand prices have crashed. And still the media refuses to acknowledge that this is massive price decline in the midst of all time record demand flies in the face of economic principles and common sense. What the media should be doing is demanding investigation of the precious metals brokers on charges of corruption and racketeering. The massive manipulation of prices using naked shorts has been going on for a long time. And given that once again world wide prices (this time currencies) have been outed as being manipulated gives even more credence to the call for investigations. Where is the Media? playing lapdog and pushing the party line as usual. Good grief this is such an obvious case corruption. And of course the FED and the Bank of London (the prime suspects) along with JP Morgan etc all had massive short positions that put them in the perfect position to maximize their profits in the event of a gold and silver crash. What an amazing coincidence.

And people just because QE is ending does not mean that the literally 10′s of trillions of dollars the FED flooded the world markets with magically disappear. This means that the effects of 5 years of massive unrelenting QE will continue for a long long time. Until or unless all the dollars are taken out of the markets the effects will remain.
This means in simple terms for those still confused the fact that the FED might end QE should not have ANY short effect on gold prices because the basic market forces it created will still be in effect. Only the major banks themselves should see share prices drop as their access to our free tax dollars is ending. The massive inflationary pressures created by those trillions is still there and gold and silver have no where to go by up, way up.

Jun 20, 2013 8:28am EDT  --  Report as abuse
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