Gold drops on steadier markets, Bernanke comments

By Frank Tang

NEW YORK (BestGrowthStock) – Gold retreated on Wednesday as weaker safe-haven demand and comments by Federal Reserve Chairman Ben Bernanke weighed down on the metal after it hit a record high in the previous session.

Gains in the euro, equity and commodity markets showed appetite for assets perceived as higher risk returned on Wednesday, denting gold’s investment appeal.

Comments by Bernanke about gold sending a different signal in response to inflation when compared with other assets prompted bullion investors to lighten positions, traders said.

At a U.S. House of Representatives hearing, Bernanke said that prices of commodities including oil and food have fallen quite severely recently.

So, “gold is out there doing something different from the rest of the commodity group,” he said. However, he said there is a great deal of uncertainty in financial markets.

Spot gold was at $1,227.15 an ounce at 2:29 p.m. EDT, against $1,233.63 late in New York on Tuesday. U.S. gold futures for August delivery settled down $15.70, or 1.3 percent, at $1,229.90 an ounce.

George Gero, vice president of RBC Capital Markets Global Futures in New York, said investors were adjusting their allocation to bullion after rallies to all-time highs.

Gero also said the Bernanke comments weighed on the metal.

“Central bankers view gold as an unnecessary distraction from government bonds. So, when they speak, they show their un-enthusiasm because gold is the economic and political barometer,” he said.

Prices touched a record $1,251.20 an ounce on Tuesday as comments from Fitch that Britain faced what it called a formidable challenge in cutting its budget deficit fueled fears over the outlook for European growth.

“Risk appetite has returned a bit after people parked their money in gold to try and shelter from the storm,” said Daniel Major, an analyst at RBS Global Banking and Markets.

“As extreme risk aversion tails off, gold is going to suffer … If we get some degree of normality returning to the markets, gold safe-haven buying is likely to drift off.”

U.S. stocks (Read more about the stock market today. ) rose as the Dow Jones industrial average recouped the 10,000 level as better-than-expected Chinese export data for May boosted hopes for economic recovery, while crude oil also rose more than $2 to above $74 a barrel.

The euro rose against the dollar for a second straight session on Wednesday, boosted by options-related demand and renewed market hopes that Europe’s debt crisis may not put the brakes on global growth.

The gold market remained supported by strong investment interest, with holdings of the world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, rising to record highs at 1,298.53 tonnes on Tuesday.

The 12-tonne rise in the trust’s holdings reflects an inflow of some $481 million at today’s prices.


Analysts said technical indicators showed that gold’s new target is higher than $1,256 as the uptrend has not been violated and a rising channel is intact. Gold is likely to climb within the channel until it reaches $1,260.

Among other precious metals, silver was at $18.13 an ounce against $18.19.

Platinum was at $1,530 from $1,530.50 an ounce, while palladium was at $448.50 against $439.50.

Platinum group metals have failed to keep pace with gains in gold this month as concerns over the economic outlook weigh on buying interest for the autocatalyst metals.

Stock Market Investing

(Additional reporting by Jan Harvey and Michael Taylor in London; Editing by Sofina Mirza-Reid)

Gold drops on steadier markets, Bernanke comments