Gold Falls in 'Manic' Plunge as Bernanke Damps Stimulus Bets

Gold futures fell as much as $100 to below $1,700 an ounce on signs that that the Federal Reserve will refrain from offering more monetary stimulus to bolster the U.S. economy.

In testimony before Congress today, Fed Chairman Ben S. Bernanke gave no signal that the central bank will take new steps to boost liquidity. The dollar rose as much as 0.8 percent against a basket of major currencies, eroding the appeal of the precious metal as an alternative investment. Yesterday, gold reached $1,792.70, a three-month high, even as coin sales by the U.S. mint slumped in February .

“People were expecting that the Fed would loosen policies, even if the perception is that the economy is doing well,” James Dailey, who manages $215 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania, said in a telephone interview. “The investor sentiment changed as the Fed committed to nothing. This is the manic nature of the market.”

In electronic trading on the Comex in New York, gold futures for April delivery fell $90.30, or 5 percent, to $1,698.10 at 5:14 p.m., compared with yesterday’s settlement. Earlier, the price tumbled as much as $100, or 5.6 percent, to $1,688.40, the lowest for a most-active contract since Jan. 25.

The settlement at the close of floor trading was $1,711.30, down 4.3 percent, the most since Dec. 14. The price, down 1.7 percent this month, has gained 9.2 percent in 2012.

Bullish Bets
In the week ended Feb. 21, hedge funds and money managers boosted bullish bets on gold futures by 9.9 percent to 179,132 contracts, the highest since Sept. 13, the latest government data showed on Feb. 24.

Holdings in exchange-traded products backed by gold rose to a record 2,403.2 metric tons today, according to data compiled by Bloomberg. Assets increased 0.4 percent, the most since Jan. 27. The total reached an all-time high for the third time in four sessions.

“Bernanke’s comments seem to have eliminated hopes of U.S. quantitative easing coming anytime soon,” William O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey, said in a telephone interview after the Comex settlement. “There were excessive net longs on hopes of more credit easing, so the market was vulnerable to these kind of statements, and it almost seemed as if Bernanke was trying to take the steam out of the commodity market.”

Sales of gold coins by the U.S. mint tumbled 83 percent in February to an estimated 21,000 ounces from January, data on the Mint’s website showed today.

Inflation ‘Subdued’
The Fed chairman said today that the inflation outlook is “subdued.” Gold had climbed this month as gasoline costs jumped, spurring demand for the metal as a hedge against increasing consumer prices.

Keeping monetary stimulus is warranted even as the unemployment rate falls and rising crude-oil prices may cause inflation to accelerate temporarily, Bernanke said.

The Fed said today in its Beige Book business survey that the U.S. economy expanded at a “modest to moderate pace” in January and early February, bolstered by manufacturing.

Total Comex volume was an estimated 342,701 contracts, the highest since Jan. 27.