March 14, 2012 / 1:11 AM / 6 years ago

Gold tumbles again on dashed QE hopes, technicals

NEW YORK/LONDON (Reuters) - Gold fell more than 2 percent in a second straight decline on Wednesday, hit by technical selling and investors quitting bullion trades a day after the Federal Reserve upgraded its U.S. economic outlook and offered few clues on further easing.

The 5 percent or $80 per ounce slide over two days has removed the premium gold enjoyed based on expectations of further U.S. monetary easing to stimulate the economy. The precious metal has now erased gains made since late January when the Fed said it would keep interest rates for the next several years.

Gold is down almost 9 percent since late February. Some funds appear to have closed out of their bullish gold bets, fearing the Fed could be done with quantitative easing after a string of improved data, including employment and retail sales.

Gold, which has appeared to lose its safe-haven appeal and has taken to trading in tandem with riskier assets, was also pressured by encouraging stress tests on most U.S. banks. Silver also tumbled around 5 percent.

Some analysts said gold could fall further after it crashed below its 200-day moving average, a key technical support during its three-year bull run. Several sudden corrections since last September have also shaken investor confidence in the traditional safe haven.

“I think it’s not yet (time to buy gold), not necessarily because it’s going to drop another 5 to 10 percent, but rather we are now technically in a downtrend,” said Oliver Pursche, managing partner of GMG Defensive Beta Fund.

Spot gold was down 2.4 percent at $1,634.39 an ounce by 3:21 p.m. EDT (1921 GMT), having hit a low of $1,634.09 - its lowest since January 16.

U.S. April gold futures settled down $51.30 at $1,642.90 an ounce. Trading volume was 70 percent above its 30-day average, set to be one of the busiest days in the past six months.

Year to date, gold is still up 5 percent after 11 consecutive yearly gains, while silver is 15 percent higher after posting a 10-percent decline last year.

With bullion trading well below its 200-day moving average, gold’s next support should be in the $1,625 area near its lows in mid-January, analysts said.

Visitors touch a 220 kg (485 lbs) gold bar, worth around $12.8 million at today's price, on display at the Jinguashi Gold Ecological Park in Xinbei city September 16, 2011. REUTERS/Pichi Chuang

“Technical momentum is a powerful short-term market mover and could take the price through $1,600 to re-test Decembers low at $1,523,” said Janet Mirasola, managing director of futures brokerage R.J. O‘Brien.

Gold briefly entered a bear market in December after it had plummeted more than 20 percent from its all-time high at above $1,920 an ounce in September.

BANK STRESS TEST WEIGHS

Also pressuring gold prices was news most of the largest U.S. banks passed their annual stress test, underscoring the recovery of the U.S. financial sector.

Silver, which had sharply outperformed gold so far this year, fell 4.7 percent to $31.80 an ounce.

Lackluster investment demand weighed heavily on silver prices, and silver fabrication demand has not caught up with a strengthening economic outlook, said Erica Rannestad, precious metals analyst at CPM Group.

Rannestad is forecasting a quarterly average price of $28.90 an ounce by the fourth quarter, about 10 percent below current prices.

An improving U.S. industrial outlook, however, was reflected in the performance of platinum and palladium due to their use in car production.

Platinum is enjoying a premium of around $30 to gold, after supply worries helped it reverse its unusual discount to bullion. Since Tuesday, platinum has been back in pole position, which marked the first time since September.

Platinum was last down 1.2 percent at $1,661.49 an ounce, while palladium fell 1.4 percent to $690.

Editing by Alden Bentley and Marguerita Choy

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