PRECIOUS – Gold Falls as Monetary Tightening Comments Impact Market, Reports Reuters

Gold Prices Decline Amid Central Bank Tightening

Gold experienced a decline for the fourth consecutive session, influenced by indications of monetary tightening from central banks. Despite this downward trend, the yellow metal found some support due to credit downgrades in Portugal and Greece, as well as a drop in U.S. consumer confidence.

The failure of gold to rise, even after reaching record highs on strong trading volume, indicates investor skepticism regarding the central banks’ intentions to limit money supply in order to curb inflation. James Dailey, a portfolio manager, noted that while short-term concerns about monetary tightening might lead to fluctuations in gold prices, there remains strong demand in the physical market.

As of 3:36 p.m. EDT, spot gold was down 0.1% at $1,417.46 per ounce, having previously dropped to $1,410.85. U.S. gold futures for April delivery settled at $1,416.20, down 0.3%. Trading activity on COMEX was notably high, with over 250,000 lots traded, marking one of the most active days of the year.

Despite the recent geopolitical tensions and inflationary pressures that pushed gold to a record $1,447.40 last week, expectations of tightening monetary policies in both the U.S. and euro zone are weighing on its prices. St. Louis Federal Reserve Chairman James Bullard suggested that the Fed should begin to unwind its monetary easing efforts, potentially reducing its bond-buying program by $100 billion. Meanwhile, the European Central Bank’s president noted that euro zone inflation is exceeding target levels.

In November, the Federal Reserve initiated a $600 billion bond-buying program, designed to stimulate the economy, which is set to conclude in June. Gold has benefitted from these measures, particularly as short-term interest rates have remained near zero since December 2008.

Recent indicators of a slowdown in the U.S. economy, including a drop in consumer confidence due to inflation concerns, contribute to the uncertain outlook for gold. Additionally, the downgrades of Greece and Portugal by Standard & Poor’s are heightening concerns among investors.

The possibility of rising interest rates is now affecting gold’s market outlook, as low real interest rates typically support demand for non-interest-bearing gold. Analysts predict that as the U.S. economy strengthens and quantitative easing comes to an end, real interest rates will gradually rise.

According to recent assessments, overall gold demand for jewelry, dental uses, and electronics is expected to increase by more than 5% this year, marking the biggest rise since 2000.

Investment interest appears to be waning this quarter, with holdings in the largest gold ETF reportedly facing one of the largest quarterly declines since its inception. In contrast, silver holdings are seeing a small recovery after significant outflows earlier in the year.

As of the latest data, silver prices fell by 0.3% to $37.02 per ounce, while platinum decreased by 0.4% to $1,738.24, and palladium rose by 1.2% to $750.72.

This ongoing dynamic in the precious metals market reflects broader economic uncertainties and shifting monetary policies.