Gold Drops as Ukraine Crisis Eases; Fed Stimulus Cut on Focus

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Gold Drops as Ukraine Crisis Eases; Fed Stimulus Cut on Focus

Gold futures plunged the most in three weeks as the metal lost its haven appeal on speculation that the Federal Reserve will make additional cuts to monetary stimulus as the US economy rebounds and Ukraine tensions eased.

Fed officials cut bond purchases for the fourth straight meeting last week. At a hearing of the congressional Joint Economic Committee, Fed Chair Janet Yellen said on Thursday that the cuts were justified by “sufficient underlying strength.” Bullion tumbled 28% last year as investors feared the central bank would tapper its bond buying program, reported Bloomberg.

“The message today the gold traders heard was that tapering will continue. The Ukraine crisis provided some support, but the overall sentiment remains subdued,” said Bill O’Neill of New Jersey-based Logic Advisors.

The per-ounce price of June settlement gold dropped 1.5% to exchange at $1,288.90 as of 1:42 pm on the Comex in New York, the deepest plunge since April 15.

Gold added 70% between December 2008 and June 2011 as the Federal Reserve injected money into the economy and reduced interest rates to a record low in efforts to support the economy.

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The price rose 7.2% this year, in part as deteriorating tensions in Ukraine bolstered the metal’s haven utility.

Tensions in Ukraine eased after Russian President Vladimir Putin asked Ukrainian supporters of separation to push back a referendum and said Russian troops were retreating from their common border. The move possibly pulled Ukraine back from the verge of dismemberment.

Nevertheless, the US said it was not convinced Russia had withdrawn its troops from the Ukrainian border, while insisting it wanted a scheduled referendum on secession canceled not just pushed back, according to Reuters.

As of 12:43 pm, the per-ounce price of spot gold was down 1.4% to trade at $1,288.73, on course for its biggest one-day flop in three weeks.

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To contact the reporter of this story; Jonathan Millet at john@forexminute.com