Gold tumbles to 2 1/2 year-low after Fed as silver plummets

Money Printing

Gold futures as much as doubled from the end of 2008 to the record $1,923.70 in September 2011 as the Fed cut interest rates to a record low. The unprecedented money printing by central banks around the world has so far failed to spur inflation. Expectations for increases in consumer prices, as measured by the break-even rate for 10-year Treasury Inflation Protected Securities, fell 16% this year, reaching a 17-month low last week.

Newcrest Mining, Australia’s largest gold producer, said this month it will write down the value of its assets by as much as A$6 billion ($5.5 billion) after the drop in prices. Paulson, the biggest investor in the SPDR Gold Trust, the largest gold ETP, had a 13% loss in his Gold Fund last month. That takes the decline since the start of the year to 54%, according to a copy of a letter to investors obtained by Bloomberg News.

ETP Holdings

Holdings in the SPDR Gold Trust slumped 351.3 tons this year to 999.6 tons yesterday, the lowest since February 2009. Global holdings now stand at 2,111.2 tons, the least since March 2011, data compiled by Bloomberg show.

While assets dropped every month this year, gold’s slump in April spurred purchases of coins and jewelry worldwide. India, the largest consumer, raised gold import taxes earlier this month to limit demand and contain a record current-account deficit.

“We are likely to see buying coming through, but I would be surprised to see the same level as we saw in April,” Walter de Wet, an analyst at Standard Bank Plc, said today by phone from Johannesburg.

Gold may drop to $1,250 in a month, down from a previous forecast of $1,425, Joni Teves, an analyst at UBS AG in London, wrote today in a report. The bank cut its three-month outlook to $1,350 from $1,500, and lowered its 2013 estimate to $1,440 from $1,600. Prices will average $1,325 next year and $1,200 in 2015, it said.

Silver Falls

Silver tumbled 33% this year, making it the worst- performing commodity. It reached a record $49.8044 an ounce in London in April 2011 and was as low as $8.46 in October 2008. Prices could drop to $10 to $15 “in days or weeks,” according to Robin Bhar, an analyst at Societe Generale SA in London.

“There is a long way down,” Bhar said by phone today. “In an oversupplied market like silver, the price should approach cost of production.”

Silver for July delivery slid as much as 9.2% to $19.64 in New York, the lowest since September 2010, and was last at $19.805. Futures trading volume in New York was about 200% more than the average for this time of the day, data compiled by Bloomberg show.

Platinum for July delivery dropped 2.7% to $1,385.30 an ounce, the lowest since April 16. Palladium for September delivery was down 4.4% at $665.85 an ounce, the lowest since April 18.

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