June 20, 2012 / 12:31 AM / 7 years ago

PRECIOUS-Gold falls as Fed stimulus extension disappoints

NEW YORK (Reuters) - Gold fell around 0.5 percent in choppy trade on Wednesday as investors sold the precious metal after the Federal Reserve ended a policy meeting without launching a third round of quantitative easing to stimulate the U.S. economy.

A worker grabs pre-cast bars of gold at a plant of refiner and bar manufacturer Argor-Heraeus SA in the southern Swiss town of Mendrisio, March 1, 2012. REUTERS/Pascal Lauener

Gold briefly fell 1.5 percent after the Fed did not announce a third round of outright bond purchases known as quantitative easing (QE3). Investors had been betting that QE3 would boost demand for gold as a hedge against economic uncertainty and currency depreciation risks.

Instead, the statement concluding a two-day policy meeting said the Fed is extending its effort to depress borrowing costs by selling short-term bonds and buy longer-dated ones — known as “Operation Twist” — by $267 billion through the end of the year.

Bullion recovered some losses as the market turned its focus on the Fed’s downgraded forecasts for U.S. growth, saying it was prepared to take further steps to help the economy if needed.

“At least for the near term, it’s mainly a short-term negative for gold because it indicates that there won’t be immediate and new aggressive accommodation, and certainly no QE3 at all judging from this statement,” said Bill O’Neill, partner of commodities wealth manager LOGIC Advisors in New Jersey.

Spot gold was down 0.5 percent at $1,608.09 an ounce by 2:45 p.m. EDT (1845 GMT), having earlier traded as low as $1,590.29.

U.S. gold futures for August delivery settled down $7.40 an ounce at $1,615.80, with trading volume in line with its 30-day average, preliminary Reuters data showed, easily the highest turnover in the last two weeks.

Recent poor indicators from the U.S. jobs, manufacturing and retail sales sector prompted talk the Fed could be pushed into a new round of asset buybacks, fueling gold’s seven-day rally which ended earlier this week.

Fed Chairman Ben Bernanke did not specify details of the central bank’s plans at a news conference following the policy statement.

“The market was really hoping for a very dovish, QE3 type event, and it didn’t get it. You are not going to see a rally in gold right now,” said Jeffrey Sherman, commodities portfolio manager of Los Angeles-based asset manager DoubleLine Capital which oversees $37 billion in assets.

Minutes from meetings of the Bank of Japan and Bank of England released on Wednesday suggest officials are poised to ease policy again. China cut benchmark rates on June 7, while the European Central Bank could take action at its July 5 meeting.

FED STIMULUS SPECULATION

Gold had rallied after the Fed in January pledged to keep interest rates near zero until at least late 2014. Gold has since tumbled several times, however, after Bernanke mentioned no further easing in his congressional testimonies.

Year-to-date, gold is up about around 3 percent. The market is still a long way off the record high of $1,920.30 an ounce hit last year.

Safe-haven bids due to the European debt crisis also underpinned gold. Spain on Tuesday had to pay a euro-era record price to sell short-term debt, underlying that the region’s troubles run much deeper than Greece.

Among other precious metals, silver was down 0.9 percent at $28.12 an ounce. Platinum fell 0.9 percent to $1,460.25 an ounce, while palladium dropped 0.8 percent to $619.25.

Additional reporting by Jan Harvey in London; Editing by Alden Bentley and David Gregorio

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