Gold Surprises Traders And Falls Below $1300

With the big day upon us, markets are expected to remain stable until the FOMC announcement due late in the US trading session. As traders positioned themselves ahead of the announcement the question of whether or not the Fed will taper its monetary policy seems to be all but decided. The question seems to remain, exactly how much will the Fed cut. Traders are making a leap of faith ahead of the actual announcement. Gold took a major tumble falling below the all important 1300 level to trade at 1297.20 this morning down by $12. Gold hovered just above a five-week low yesterday as traders waited for guidance on when the US Federal Reserve will begin tapering its massive economic stimulus. Bullion has lost more than 20 percent of its value this year as a recovering US economy has dented its safe-haven appeal and raised fears the US central bank would scale back its commodities-friendly bond purchases. Traders said prices would find their next support level at $1,270-$1,280 an ounce.

Holdings in the SPDR Gold Trust, the biggest bullion-backed exchange-traded product, were unchanged for a second day at 911.12 metric tons yesterday. Assets have shrunk 33 percent this year, wiping more than $34 billion from the value of the fund, as the global economy recovers and inflation fails to accelerate. The U.S. consumer-price index rose 0.1 percent in August from July, compared with economists’ estimates for a 0.2 percent gain, data showed yesterday. Gold futures had risen above $1,315 an ounce after former U.S. Treasury Secretary Larry Summers on Monday dropped out of the race to become the head of the Fed. Summers was widely viewed as more likely to push for a faster end to the central bank’s easy-money policies that have been credited for supporting gold prices and weighing on the dollar.

Gold, often seen as a hedge against inflation and a slowing economy, benefited when central banks around the world launched stimulus measures to support their economies. The metal hit an all-time high of about $1,920 an ounce in 2011. But this year several analysts have cut their forecasts for gold prices in anticipation of the U.S. central bank curbing its stimulus measures. Goldman Sachs expects prices to drop to $1,050 by the end of next year. Due to the volatility in prices, physical demand has failed to pick up rapidly in key consumers India and China. Expectations that prices could fall further once the Fed announces a cut in stimulus have also restrained purchases.

Silver for immediate delivery slid 1.2 percent to $21.4763, dropping for a third day. Platinum declined as much as 0.6 percent to $1,414.55 an ounce, the lowest level since July 26. Palladium decreased 1 percent to $697.53 an ounce, halting a three-day increase. The overall metals pack is trading on a negative note with little data or guidance today. Copper eased by 3 points to trade at 3.222. Today trading will be flat as traders await Mr. Bernanke’s decision later in the day.