Gold Drops After Bernanke Says Stimulus Could Not Offset Fiscal Cliff
ICN.com | Dec 13, 2012 07:48AM ET
Precious gold dropped to one-week low on Thursday trading on renewed worries of the so-called U.S. fiscal cliff after Fed's Chairman Ben Bernanke said the bank`s stimulus can not dwarf the full effect of the fiscal crisis, which threatens the world's no. 1 economy a fresh recession.
The shiny metal lost almost 1% trading now around $1697.68 an ounce after opening today's sesssion at $1710.59. Breaching support levels around $1705, which represents SMA 100 on the daily charts, paved the way for gold to retreat.
The trading range for today is expected among the key support at $1695.00 and the key resistance now at $1730.00.
Gold's adverse response came in contrast with analysts' predictions that gold would rise as an inflation hedge after the Fed pledged to purchase $45 billion of long-term Treasurys each month, topping the $40 billion a month in mortgage-backed bonds announced in September.
The Fed linked its monetary easing for the period ahead to the latest macroeconomic developments, more specifically the rates of unemployment and inflation. Bernanke said interest rate will stay low as long as joblessness is above 6.5%, where inflation has to be no more than 2.5%, instead of its prior announcement to keep borrowing cost low until the middle of 2015.
It seems that the Fed's announcement caused confusion among investors as some looked to the improvement seen recently in the labor market, after unemployment slipped to 7.7% in November, that it would limit future stimulus.
On the other hand, the U.S. fiscal cliff remains predominant on investors' sentiment with only three weeks left before the spending cuts and tax hikes take effect.
Gold neither took advantage of the losses in the dollar nor did it track gains in the euro, where it recently has been unmoved by movements in the FX market.
The U.S. dollar inched down against major currencies after falling sharply in the past three sessions, according to the Dollar Index, which currently hovers around 79.85.
The euro resumed its rally for four consecutive sessions trading around 1.3088 against the greenback, compared with the day's opening of 1.3073, after EU finance ministers agreeing on authorizing the ECB with the supervision over regional lenders. The decision boosted hopes European officials are stepping up their game to confine the debt crisis.
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