Gold drops below US$1,200 for the first time in five months
Precious metal drops below US$1,200 an ounce as trimmed stimulus hits demand for safe assets
Gold dropped below US$1,200 an ounce to a five-month low as the United States Federal Reserve trimmed economic stimulus, reducing demand for haven assets.
Quantitative easing helped gold jump 70 per cent from December 2008 to June 2011 as the Fed expanded its balance sheet through debt purchases, fuelling expectations of accelerated inflation and a weaker US dollar.
Bullion for February delivery eased 2.4 per cent to US$1,205.20 an ounce in New York after falling as much as 3 per cent to US$1,198, the lowest since June 28.
Prices tumbled into a bear market in April and are heading for the first annual drop in 13 years as investors lose faith in the metal. Prices plunged 37 per cent since they had reached a record US$1,923.70 an ounce in September 2011.
"The cat is now out of the bag in terms of tapering," said Ole Hansen, the head of commodity strategy at Saxo Bank in Copenhagen. "Gold is under renewed pressure. Hedge funds are adding to existing shorts on the break below US$1,210, and we are seeing long capitulation from those who had hoped that tapering would not happen so soon."
Gold exchange-traded products lost US$72.43 billion in value since the start of the year and mining companies wrote down at least US$26 billion after investor appetite waned.