Gold Extends Declines On Stimulus Concerns

Gold futures fell Wednesday, still feeling pressure from concerns that central banks will not inject more monetary stimulus into the global financial system.

Gold for August delivery  lost $1.50, or 0.1%, to $1,375.50 an ounce.

The decline followed Tuesday’s loss of $9, with gold and other metals and assets rattled after the Bank of Japan made no change in its monetary policy.

The central bank also left the terms of its fixed-rate funds supply program unchanged, a decision that HSBC said defied market expectations for the bank to extend the duration of loans offered under the program to over one year in an effort to subdue volatility in the Japanese government bond market.

“Gold’s drop in reaction to the [Bank of Japan] announcement shows that monetary policy is quite influential when it comes to bullion prices. Furthermore, gold is coping with the headwinds of rising U.S. bond yields,” HSBC analyst James Steel wrote Tuesday.

Bond yields have climbed since the beginning of May on uncertainty about whether the U.S. Federal Reserve will begin to slow the pace of its bond-buying program this month.

Gold futures have dropped nearly 18% this year as investors have watched for signs the Fed will taper the monetary easing, which has been considered a key driver for gold’s rally in recent years.

Steel at HSBC noted that the U.S. dollar remains relatively strong against a range of currencies, although less robust against the euro. A stronger dollar  tends to pressure prices of dollar-denominated commodities such as gold, as it makes them more expensive for holders of other currencies.

“These factors are putting gold to the test and we may see further selling this week. Prices may be vulnerable to the downside as the important Chinese markets are closed until Thursday due to holidays,” said Steel.

In other moves Wednesday, July silver  fell 7 cents, or 0.3%, to $21.58 an ounce and copper for July delivery  fell 1 cent, or 0.3%, to $3.18 a pound.

Source : Marketwatch