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Au and Ag Get in the Smelter After Coming Out of the Vice

“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 22 percent 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. (NCM)

“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.”

Gold Price

Gold for immediate delivery dropped as much as 4.8 percent to $1,286.20 an ounce, the lowest since Sept. 28, 2010, and traded at $1,300 by 11:57 a.m. in London. Bullion for August delivery sank as much as 6.5 percent to $1,285 on the Comex in New York and was last at $1,298.80. Futures trading volume was triple the average in the past 100 days for this time of day, according to data compiled by Bloomberg.

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 (SPGSCI) gauge of 24 commodities dropped 3.6 percent since the start of January, the MSCI All-Country World Index of equities rose 5.4 percent and the U.S. Dollar Index added 2.8 percent. A Bank of America Corp. index shows Treasuries lost 1.9 percent.

Money Printing…”

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