Gold fell below $1,300 an ounce to the lowest in more than 2 1/2 years in New York, exceeding April’s drop into a bear market, after Federal Reserve Chairman Ben S. Bernanke said stimulus may be reduced later this year as the economy recovers. Silver dropped to the lowest since 2010.
Bernanke said yesterday the central bank, which buys $85 billion of Treasury and mortgage debt each month, may begin reducing purchases this year and end the program in 2014 should the economy continue to improve. The dollar rose to the highest in more than a week against six major currencies and the 10-year yield on Treasuries reached a 22-month high. Commodities dropped.
Bullion slid 23% this year, heading for the biggest annual drop since 1981, as some investors lose faith in it as a store of value and as speculation grew that the Fed will taper debt-buying that helped the metal cap a 12-year bull run last year. Investors sold 520.7 metric tons valued at $21.6 billion from gold-backed exchange-traded products this year. The price slump hurt billionaire hedge fund manager John Paulson and producer Newcrest Mining Ltd.
“The markets are definitely not prepared to wait until the tapering actually begins,” said Ole Hansen, the head of commodity strategy at Saxo Bank A/S in Copenhagen. “The combination of Fed tapering, a spike in nominal yields and a stronger dollar has put gold under some considerable pressure.”
Bullion for August delivery sank as much as 6.5% to $1,285 on the Comex, the lowest since Sept. 28, 2010, before trading at $1,293.70 at 9:31 a.m. in New York. Futures trading volume was about 150% higher than the average in the past 100 days for this time of day, according to data compiled by Bloomberg. Gold for immediate delivery traded at $1,296.70 in London.
The metal may fall another $50 in the next few days and will probably drop to about $1,100 in a year, according to Ric Deverell, head of commodities research at Credit Suisse Group AG. Nouriel Roubini, professor of economics and international business at New York University, has forecast a decline toward $1,000 by 2015.
The Standard & Poor’s GSCI gauge of 24 commodities dropped 4.1% since the start of January, the MSCI All-Country World Index of equities rose 4.9% and the U.S. Dollar Index added 2.7%. A Bank of America Corp. index shows Treasuries lost 1.9%.
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.
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 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.