Gold rebounded on Friday after plunging to its lowest level since September 2010 after Ben Bernanke said Feds monetary stimulus might be decelerated in the second half of the year and brought to an end in 2014. This caused almost all commodities across the board to mark serious daily losses, led by precious metals and mainly gold and silver. Gold lost 5.34% of its value yesterday, erasing around $70 from its price for the day. Although the precious metal rebounded today, it is still headed for its worst week since September 2011, having lost around 7% so far.
On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded 0.79% higher on the day, standing at $1 296.35 per troy ounce at 8:58 GMT. The precious metal ranged between days high and low at $1 301.75 and $1 268.75 per ounce respectively.
Gold has lost around 30% of its value since the all-time record of $1921.15 in September 2011 and is down near 23% for this year alone, heading for the biggest annual drop. Figures released earlier during the week showed inflation in the U.S. is stable and low. Core CPI, which excludes the more volatile energy and food prices, rose only by 0.2% compared to 0.1% in April and met projections. On an annual basis Core Consumer Price Index also met expectations and remained the same compared to May 2012 at 1.7%. CPI for May was even lower than anticipated and stood at 0.1%, below forecasts for a 0.2% increase. This rendered gold, used as a hedging strategy against inflationary effects, poised for a bearish trend.
The dollar index, which tracks the greenback’s performance against six major counterparts, ended 0.61% higher on Thursday after it hit a two-week high at 82.10 and extended further gains. So far, the dollar index marks a weekly gain of 1.43%, which coupled with the low inflation pushed gold down. Strengthening of the greenback came after Ben Bernanke announced yesterday that the central bank won’t scale down its monetary easing program just yet, but that is highly possible to happen within the end of the year, provided the needed stable recovery signs. According to Bernanke, Fed’s moves are tied to what happens in the economy and the central bank has no fixed plan, sentiment points at reducing bond purchases. Bernanke said that if the economy continues to improve in line with Fed’s projections, it would be “appropriate to moderate the monthly pace of purchases later this year”, and end the program as the unemployment rate drops to 7%, which Fed expects to happen around mid-2014.
Jeffrey Christian, managing partner at CPM, said in an interview for Bloomberg: “The worst of the current round of decline is probably behind us as gold prices may stabilize and rebound. It’s going to be very important to see in the next few days how enthusiastic investors are. If they signal they are waiting for still lower prices, that will be a very negative signal.”
Market players are speculating whether the attractive lower prices will lure in investors the same way they did in April after the 30-year record slump on April 15-16. That was followed by increased physical demand in India and China and many central banks, which felt the time is right to diversify assets through cheap gold. In fact, demand surged so high that Indias central bank was forced to introduce curbs to gold imports as the countrys current account deficit widened to a record level. As a result, inbound shipment tax for the precious metal was raised to 8%, up from 6%.
Elsewhere on the precious metal markets, silver and platinum are marking daily losses, while palladium traded higher on the day. Silver futures for July delivery lost 0.53% to trade at $19.718 an ounce at 9:00 GMT. Platinum July futures stood at $1 359.50 per troy ounce, 0.33% for the day. Palladium outperformed the other metals, marking a 1.64% daily gain so far. Palladium futures for September delivery traded at $676 an ounce, ranging between daily high and low at $680.90 and $656 respectively.